Should You Consider
Return of Premium Term Life Insurance?
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
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
or . 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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