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Is return of premium life insurance worth it?

Return of premium life insurance gives you back all or most of your premiums paid once the term length ends. Understand the pros and cons of this type of coverage.

If you like the idea of taking out a term life insurance policy to protect your family during the years they need it most, but hate the idea of putting money towards life insurance premium payments for 10, 15, 20 or 30 years, you might be interested in learning about a term life insurance product called return of premium life insurance.

Return of premium life insurance, often called ROP life insurance, is exactly what it sounds like — a term life insurance policy that returns your premiums at the end of the term. Not all life insurance companies offer ROP policies. But if you’re interested in buying life insurance coverage and getting your monthly premium dollars back if you are still alive at the end of your ROP term, you might want to look into return of premium term insurance.

It might sound like ROP offers the best of both worlds — the opportunity to provide a death benefit to your loved ones if you unexpectedly pass away during your ROP term, and the opportunity to get some of your monthly premium payments back if you are still living when your life insurance coverage ends — but there are some downsides. For example, a return of premium life insurance policy is more expensive than a standard term life policy.

Currently, Haven Life does not offer ROP policies because our internal research indicates that it’s not what our customer base needs or is seeking. However, that doesn’t mean you shouldn’t consider ROP insurance as you compare your life insurance options. Is a return of premium life insurance worth it? It all depends on what you hope to get out of your life insurance policy — and what you’re willing to pay for.

In this article:

What is return of premium life insurance?

Return of premium life insurance is a type of term life insurance coverage that returns your premium payments if you are alive at the end of your coverage term. Again, ROP life insurance works exactly as the name indicates: as long as the insured outlives the term period, the policy returns most or all of your premiums paid at the end of the term length — and you don’t even have to pay income tax on your windfall. This type of coverage can be either a stand-alone policy or as an optional life insurance rider on a standard term life insurance policy.

So why don’t we hear more rave reviews about this coverage option? While ROP insurance can be a nice fit for some families, it has some downsides that make it one of the less popular forms of term life insurance.

Pros and cons of return of premium life insurance

Here’s a quick list of the pros and cons associated with return of premium life insurance:

Pros

Cons

How much does return of premium life insurance cost?

Return of premium life insurance is generally more expensive than other types of term life insurance. This makes it a harder sell for a lot of people, even the ones who are interested in ROP life insurance because of the premium benefit associated with the policy.

How much more is a ROP policy going to cost you? Let’s do some comparisons. According to State Farm, a 25-year-old woman in excellent health might pay around $51.77 per month for a 30-year, $250,000 return of premium life insurance policy. That same woman would pay just $19.90 per month for a standard term life insurance policy through Haven Life. That’s a difference of $11,473.20 in premium payments over the life of the policy.

That’s the big decision you’re going to have to make when you’re trying to decide between return of premium life insurance and regular term life insurance — or when you’re trying to decide whether to add a return of premium rider to a term life insurance policy. Are the higher premiums that you’re going to pay on the ROP policy worth the benefits? Or should you get the term policy and use the money you save to build your emergency fund, contribute to your children’s college education or work towards another big financial goal?

How does ROP term life insurance compare to a permanent life insurance policy? A return of premium policy, as mentioned above, might cost a 25-year-old woman in excellent health around $51.77 per month for a 30-year policy with $250,000 in coverage. A $100,000 whole life insurance policy from Allstate, on the other hand, starts at $136.68 per month — that’s over twice as much money for less than half of the coverage.

Of course, a permanent policy has other advantages, which is why people are often willing to pay higher premium payments to sign up for permanent life insurance. In addition to providing life-long coverage (as long as you keep up with your premium payments), permanent life insurance has what is called a cash value. This cash value can be withdrawn from the policy and used to cover retirement expenses, home remodeling, student loans — literally anything you want. Variable life insurance policies and variable universal life policies even let you invest your life insurance cash value, so it can grow along with the market.

Essentially, policies like permanent life and universal life offer the same promise as return of premium life insurance: the opportunity to do something with your premium payments, whether you’re saving up a cash value now or getting that premium money back in the future. Does that mean a return of premium policy is right for you? Not necessarily.

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Is return of premium life insurance right for you?

If you’re thinking about return of premium life insurance, ask yourself the following question: are you willing to pay higher premium payments now for the potential of getting those payments back when your premium term ends? Since an ROP policy is much more expensive than a term life insurance policy, you have to ask yourself how much money you’re willing to put into your monthly life insurance payments — and whether you and your loved ones would be better served if you put that money towards a different financial goal.

Yes, the idea of getting part or all of your premium payments back at the end of your ROP life insurance term is attractive. So is the idea of the cash value associated with a permanent life insurance policy. But remember the real purpose of life insurance: to protect the people you love by providing them with a death benefit in case you pass away while they are still dependent on your income or your financial contributions.

A term life insurance policy solves that problem in a way that is both simple and affordable. You can choose the exact amount of coverage you need — maybe you want a 20-year policy to cover the family until your kids graduate from college, or maybe you want a 30-year term policy to cover you and your partner until the mortgage is paid off. Maybe you only need a 10-year term life insurance policy because you got married later in life and are planning on retiring soon. You get to decide how much coverage you need and how long that coverage should last, which allows your policy to be as cost-effective as possible.

When you sign up for return of premium term life insurance, or when you work with a life insurance agent to set up a universal life insurance policy, you’re adding extra bells and whistles to your life insurance in exchange for higher costs. For some people, those benefits are worth it — but there are hazards along the way that you might not be aware of. If you have an ROP policy and you pass away during your return of premium term, your beneficiaries will receive the death benefit associated with your ROP life insurance policy but none of your premium costs will be refunded. Think through every potential scenario before making your decision.

Is return of premium life insurance right for you? Typically, people choose medically underwritten term life insurance over a ROP policy because the premiums are lower and they’d rather keep the extra money they would have paid for an ROP policy in their pockets. But for those who want to get their premiums back, and are willing to pay the higher cost, it could be a good fit.

Fortunately, there are lots of options when it comes to life insurance, making a good fit possible for all kinds of families in all kinds of situations. With a little research, you can make sure you pick the best kind for your family. If you’re interested in a return of premium policy, start getting some quotes and finding out exactly what you can get for your money. Then get at least one traditional term life insurance policy quote as a point of comparison. The best way to decide between ROP and term life — or between ROP and a permanent policy — is to compare the two life insurance quotes side-by-side. Once you’ve got the numbers and the benefits in front of you, you’ll have the information you need to determine whether return of premium life insurance is worth it.

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About Nicole Dieker

Nicole Dieker has been a full-time freelance writer since 2012, with a focus on personal finance and habit formation. In addition to Haven Life, her work regularly appears at Lifehacker, Bankrate, CreditCards.com, and Vox. Dieker spent five years as a writer and editor for The Billfold, a personal finance blog where people had honest conversations about money, and is the author of Frugal and the Beast: And Other Financial Fairy Tales.

Read more by Nicole Dieker

Our editorial policy

Haven Life is a customer-centric life insurance agency that’s backed and wholly owned by Massachusetts Mutual Life Insurance Company (MassMutual). We believe navigating decisions about life insurance, your personal finances and overall wellness can be refreshingly simple.

Our editorial policy

Haven Life is a customer centric life insurance agency that’s backed and wholly owned by Massachusetts Mutual Life Insurance Company (MassMutual). We believe navigating decisions about life insurance, your personal finances and overall wellness can be refreshingly simple.

Our content is created for educational purposes only. Haven Life does not endorse the companies, products, services or strategies discussed here, but we hope they can make your life a little less hard if they are a fit for your situation.

Haven Life is not authorized to give tax, legal or investment advice. This material is not intended to provide, and should not be relied on for tax, legal, or investment advice. Individuals are encouraged to seed advice from their own tax or legal counsel.

Our disclosures

Haven Term is a Term Life Insurance Policy (DTC and ICC17DTC in certain states, including NC) issued by Massachusetts Mutual Life Insurance Company (MassMutual), Springfield, MA 01111-0001 and offered exclusively through Haven Life Insurance Agency, LLC. In NY, Haven Term is DTC-NY 1017. In CA, Haven Term is DTC-CA 042017. Haven Term Simplified is a Simplified Issue Term Life Insurance Policy (ICC19PCM-SI 0819 in certain states, including NC) issued by the C.M. Life Insurance Company, Enfield, CT 06082. Policy and rider form numbers and features may vary by state and may not be available in all states. Our Agency license number in California is OK71922 and in Arkansas 100139527.

MassMutual is rated by A.M. Best Company as A++ (Superior; Top category of 15). The rating is as of Aril 1, 2020 and is subject to change. MassMutual has received different ratings from other rating agencies.

Haven Life Plus (Plus) is the marketing name for the Plus rider, which is included as part of the Haven Term policy and offers access to additional services and benefits at no cost or at a discount. The rider is not available in every state and is subject to change at any time. Neither Haven Life nor MassMutual are responsible for the provision of the benefits and services made accessible under the Plus Rider, which are provided by third party vendors (partners). For more information about Haven Life Plus, please visit: https://havenlife.com/plus.html

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