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Should You Consider Return of Premium Term Life Insurance?

ROP Term, or Return of Premium Term Life insurance is the latest dressing up of Term Life Insurance. Once fairly common, the return of premium insurance is beginning to make a comeback—partly because more people in their 30s and 40s are beginning to realize that they don't want to pour money into something only to have to choose between increasing premiums, new insurance, or no insurance at the end of the term.
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ROP insurance is relatively inexpensive for the companies—costing them very little more than regular Term insurance. In either case, they invest the money while you are living and make a return on it, which they keep—unless you die, requiring them to pay a claim. However, the premium can be considerably higher than regular term, and you get back only your premium. You receive no interest. It's a bit like putting your money in a box on a monthly basis and counting it 30 years later. Of course, if you die, the insurance company pays the face value whereas your little box would be simply money in-money out.

There are a couple of situations for which return of premium term life insurance policies might be suitable. If you have a mortgage or other large loan, or if you need to protect a business for a limited time period, an ROP might be for you. In either case, when the protected debt is paid off, you would no longer need the ROP insurance. A nice check in return for letting a company hold your money for 10 to 30 years would probably be welcome.

Before purchasing ROP term insurance, you should definitely ask for quotes on Universal or Whole Life. If you can get a universal for about the same price, you would probably be better off to do so as you would have something that builds cash value which you can use or borrow against fairly early in the policy. Plus, the policy would not expire.

Be aware that if you opt for return of premium term, you will have to pay on the term for the whole period, be it 10 years or 30, in order to get your money back. Also, some companies do not offer a renewal option—at any price—if you take the refund. That puts you in the position of having to pre-pay final expenses or finding a whole life policy at a time when your age could be against you.

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