Return of Premium Term Life: Could Your Life Insurance Cost You Nothing?

UPDATED: Mar 26, 2020

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Term life insurance is the least expensive type of life insurance you can buy. Yet, some people shy away from it because of its temporary nature.

Term life provides coverage for a set period of time (generally 10, 15, 20, 25, or 30 years). If you die before a traditional term life policy has expired (or if you renew your policy to extend the term), your beneficiaries get a payout. If you don’t die during the term of the policy, they don’t get a payout and you don’t get any of the money back that you’ve paid in premiums.

But what makes term life insurance a viable option is that it’s flexible and extremely affordable compared to permanent life policies that come with high-priced premiums. (That’s precisely why I opted for a 20-year term policy to protect my family. While there are still mortgage payments to make and college education expenses to pay in the not-so-distant future, I feel better knowing my husband will have a financial cushion if tragically the unexpected happens to me.)

So what do you do if you need life insurance that’s cost effective but you’re not digging the idea of making premium payments that will be all for naught if you outlast the term of your policy?

Return of Premium (ROP) Term Life Insurance Pays You Back

“Return of premium” term life insurance typically provides coverage for a term of 15, 20, 25 or 30 years. If you don’t die before your policy’s term ends, the insurance company pays you back in full for the amount you’ve paid on your premiums.

The Appeal of ROP Term Life Insurance

With return of premium life insurance, you could have coverage with a net cost of zero dollars. If you pass away during the term of the policy, your beneficiaries receive a death benefit; if you outlive the policy’s term, you get all your money back. ROP term life insurance combines the advantages (affordability and guaranteed level-premium periods) of traditional term life insurance with the return of premium component.

Any Downsides to ROP Term Life?

It probably comes as no surprise that ROP term life insurance will cost more than traditional term life. Obviously, life insurance companies would need to get something in return for the guarantee that they’ll either be paying a death benefit or returning all premium costs dollar for dollar to you one day.

Also, you need to stay current with your premium payments throughout the policy term. And if you terminate your policy early, you will likely only receive a portion of the premiums you’ve paid to the insurance company.

Is Return Of Premium Term Life Right For You?

While you will probably find it more affordable than permanent life insurance, that’s not a question I can answer here. Only you can decide what will be the best choice for your peace of mind and your loved ones’ financial well-being.

Educate yourself about your options, talk with a trusted insurance professional, and ask questions so you understand the pros, cons, and costs. Our ROP calculator can help you compare the cost of a traditional term life policy to that of an ROP policy.

Tim Bain

Tim is a licensed life insurance agent with 23 years of experience helping people protect their families and businesses with term life insurance. He writes and creates stuff for QuickQuote and other insurance and financial websites. You can find him on Twitter.

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