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How to Choose the Best Return of Premium Life Insurance Policy

Daniel Walker
Licensed Insurance Agent for 15 Years

UPDATED: Mar 19, 2020

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If you know how return of premium life insurance works, you know that this type of policy works in the best interest of the insured party while allowing the insurance company to earn dividends on a guaranteed investment.

However, if you do not choose a policy that is long enough to give your insurance company adequate time to earn interest you will end up paying much more in premiums than necessary.

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If you are fairly healthy and have not yet reached your golden years, a return of premium life insurance policy, also known simply as a ROP, can provide you with life insurance coverage for almost nothing.

Find out if a return of premium life insurance policy will work best for your current life situation.

Return of Premium Life Insurance: How it Works

After contracting with a life insurance company, you will pay them the amount of money that you agreed upon for a number of years, and if you have not passed by the time your policy expires, you will have every cent that you paid returned to you. This type of life insurance is a great choice for people that don’t want to lose out when they cash a whole life insurance policy, but still want a financial safety net in the future.

Return of premium life insurance policies are similar to term life insurance, only you are guaranteed to get your premiums returned to you. On the other hand, term life insurance is a good alternative for consumers that opt to purchase long-term policies when they are in the latter portion of their lives. It is a bit of a gamble, but for many people with illnesses or who have family members that pass away at a particular age, predicting how much time you have left can give you a better chance of receiving a large insurance payout.

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Knowing How Much to Pay for Return of Premium Life Insurance

Unlike whole life insurance, you will probably not receive an exceptionally large payout. Return of premium life insurance is meant to be an affordable option for consumers that believe that they will outlast their policies. It would not be reasonable for insurance providers to charge consumers thousands of dollars a month in exchange for a multi-million dollar payout, so if you expect a payout that high you should probably just play the lottery.

You will pay more for a ROP insurance policy than you will for term, or whole life insurance, but this is the only type of insurance that returns the money to the insurance party. In other words, you can purchase return of premium life insurance coverage that is set to expire the same year that you retire instead of investing in a 401K. If you do not live to see your retirement, and you do not have any family members that need to be supported, a ROP policy will work well for you.

The Length of a Return of Premium Life Insurance Policy and Premiums

Although you are guaranteed to get the money you paid in premiums back, purchasing a relatively short-term policy is not the best move. The longer your period of coverage, the less in return of premium life insurance premiums you will pay. Think of it as the reverse of getting a mortgage. The longer the length of your mortgage, the less you will pay them each month. If an insurance company is to make any profit off of a return of premium life insurance policy, the company will need to hold on to the money to make a substantial return.

Of course, the whole point of getting a ROP policy is to get your premiums back, so try to pick a length of time that you believe is reasonable. Not only will your premiums be lower, you will also get paid more money once your coverage expires.

Some people are able to put their money into CDs and high yield interest savings accounts and never become tempted to spend any of it. Others need a way to effectively save money without risking tapping into their resources when times get tough. Getting a return of premium life insurance policy does not guarantee that you will be able to reap the benefits, but it does give consumers a way to save money without exposing themselves to any major risks. Compare your life insurance options closely and compare quotes before settling on the insurance product that best fits your life.

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