Return of premium life insurance (ROP) is best for seniors who are looking for more options other than the term and whole life insurance policies. If you want to learn more about this insurance plan or planning to purchase one for yourself, you need to read the article further.
Here we have mentioned how the senior life insurance return of premium works, its benefits and drawbacks, and why you need to choose it over others.
So, let’s discuss.
What Is Return Of Premium Life Insurance?
ROP or Return of Premium is a type of life insurance policy that refunds all the monthly premiums that the insurer has paid if they are still alive at the end of the insurance. The money you will get is completely tax-free, and you can use it for anything without any obligation.
On the other hand, if the policyholder dies during the insurance period, the beneficiaries will get the death benefit. Plus, the death benefit will be the same as standard term life insurance. Hence, as of its name, the ROP returns the premiums if the insurer outlives the policy.
It is important to purchase life insurance and prepare for unexpected expenses, as life is unpredictable. Even if you are completely healthy and fit today, it doesn’t mean that you won’t experience any health issues in the next 10 or 20 years.
This way, you get protection in case of any emergency your family has to face if you die. It is like a saving account that helps you protect your loved ones even if you are not around.
How Does Return Of Premium Life Insurance Work?
Some insurance companies offer you to add the return of premium life insurance as a rider to your standard term life insurance.
You also need to know that ROP lasts until the term of your policy. You can purchase a 10, 20, 30-year, or other year term life insurance with the ROP rider.
Here is how your insurance policy will work.
- The insured makes annual or monthly payments, known as premiums, to help them keep the insurance policy.
- If the policyholder dies during the period of the term, beneficiaries of the policy will get a pre-decided cash amount known as the death benefit. The larger the amount of insurance coverage you will choose, the higher premiums you have to pay.
- If the insured outlives the term period, they will get the 100% premiums they have paid over the course of the term. The money will be tax-free, and the policyholder will get it at the end of the term.
Depending on your chosen insurance company, if you delay, cancel, or stop premium payments, they may not refund your premiums.
Return Of Premium Life Insurance Benefits
Purchasing ROP can be extremely beneficial for you. Here are some advantages of the insurance policy that you need to learn.
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Tax-Free Premium Returns
The primary drawback of every saving account is that the company deducts the tax at the end of the contract. But, as you know, the return of premium offers you a refund of all the money you have paid until the end of the policy.
Not only this, but the money you will get will be tax-free. Hence, there will be no deduction due to the taxes on the money you have saved until now.
Because of the tax-free payments, you will get more freedom and flexibility. The recent changes in the US tax laws have caused uncertainty in terms of tax status.
This is a huge benefit for the people who might think they have to pay for the taxes in other insurance policies. ROP policies are the best form of the tax shelter, and it also saves your money.
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Quick Application Process
This is another advantage of purchasing this insurance policy. You may don’t know, but getting the right quotes and applying for the policy is much easier.
The best part is that you can estimate your quote online and fill up your application online without contacting any insurance agent or other professionals.
The companies offering this insurance plan try to approve your policy within few days. Not to mention, they don’t need medical proof and other documents from you to approve your application. In other words, without any stress, you will be able to protect your family.
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Term Length
The term length is one of the main concerns of many people. They want to choose a term according to their needs and life planning. The flexibility of ROP life insurance attracts people who want to make the right decision about their life.
Depending on your insurance organization, you will get various term options, such as 10, 25, and 30 years of period. This insurance is more affordable compared to other insurance plans, which makes it ideal for young people.
Not to mention, you also need to pay a fixed amount every month. This way, you can manage your budget and financial planning in the way you like.
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Convertible Policy
When your policy period ends, you need to decide whether you want to convert your ROP policy into a permanent life insurance plan.
Apart from this, you also don’t need to give any evidence to your insurance company to convert your policy. However, you might have to go through with a certain procedure if you turn 65 years at this point.
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No Restrictions on Returned Premiums
The premiums you will get at the end of the term don’t have any limitations. You can use it for anything you want without any problem.
When you get the money back, you can pay your student loan, go on a vacation, make a down payment, or purchase an expensive car. It’s, of course, comforting that you will get the money that you and your family can use without any restriction.
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Affordable
Return of premium life insurance policy may be a bit expensive than the pure term life insurance. However, it is less expensive compare to the whole life or universal life insurance policy.
You also need to understand that even if you have to pay great monthly premiums, you will get 100% money after the term. This way, your money is not going anywhere.
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No-Risk
This insurance policy is not only design for the seniors who are planning for their final expenses. It is also great for young people. If you don’t want to take the risk through bonds and stocks, it is the best option for you.
You can also add extra protection to your insurance policy, like Disability Waiver of Premium. In this case, the company will forgive your future monthly payments if you become completely disabled in the future. But if you want to purchase a policy with these features, you need to discuss it with your company before buying it.
Return Of Premium Life Insurance Drawbacks
Seniors who are thinking of purchasing this policy also need to know its drawbacks. Here are some disadvantages of the ROP term life insurance.
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Average Health
No matter what your age is, if you have average health, most companies don’t provide the additional cost for the ROP rides. Therefore, people who are looking for this feature don’t find this policy a great option.
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Return on Investment
Seniors who already have tax-deferred accounts and who have already invested in other types of programs don’t need to purchase this policy. They can simply opt for the standard term life insurance without the rider.
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Life Expectancy
Another drawback of this policy is that seniors who have concerns about whether they will outlive the initial term should not purchase this policy. This is because the ROP plans don’t return premiums when the death penalty is paid.
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Experienced Investor
Of course, professional investors who have knowledge and expertise to invest in different industries may not need to invest in the ROP.
They can earn more money if they invest their premiums in any other market. Plus, they can save the additional cost they need to pay for the ROP premium rider.
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Surrender Value
If you want to surrender the policy before the end of the premium, you might only get some amount of the premiums that you have paid till then.
However, most companies don’t refund any amount if you surrender the insurance program within a few years.
Return Of Premium Policy Vary By Company
Before making any decision, you need to understand that every company has its own policies. This is why their insurance plan’s features are greatly different from each other.
Besides that, some insurers also try to twist the details of the ROP insurance plan. So, be sure that you dig deeper and get all the information before buying the policy.
For instance, some return of premium plan develops cash value after some time. You can take withdrawals or loans against this cash value.
But you need to repay the loan or the money you have withdrawn. In case you don’t, the money you have already taken will get deducted from your refund or death benefit.
In addition to it, you may also get a refund or death benefit less than you expected. Insurance firms can subtract different fesses for the added riders in your policy, such as an accelerated death benefit.
Is Senior Return of Premium Life Insurance Worth It?
You have already understood the benefits and drawbacks of the return of premium life insurance. Now, you can understand why purchasing this insurance policy is totally worth it.
If you fall into any one of the following categories, you need to invest in this insurance plan.
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People Who Need Interest in Premiums
Due to age, health, and other things, many people don’t get the policies that could promise them a good return on the investment.
But in the ROP plan, you invest your money, double the money due to the interest, and get it back in the shape of a refund or death benefit.
This investment is best for people who want you to pay for any financial need such as retirement and college loans. There is no restriction on spending your money.
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People With No Investment Background
Seniors who don’t have any background in the investment market can enjoy the benefits of the ROP plan. This is because they don’t need to implement strategies or use their skills to double their money.
All you need is to choose the plan and keep up with your monthly premium payments. The company will deal with all the other processes.
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People Who Are Already Financially Secure
People who are financially stable and have maximum investments for almost every important life event, such as emergency savings, retirement, college savings, and others, are excellent candidates. These are the people who don’t want to take further risks but still want to earn some money from their investments.
The money they will invest in the ROP is completely secure, and because of having financial stability, they can also pay for the high premiums. This way, they will get good investments without any trouble.
Return Of Premium vs. Term Life Insurance
You may think that Term life insurance and ROP plan are the same. But these policies are considerably different from each other. Not to mention, ROP insurance plans have the edge over term insurance programs.
Here we have mentioned the differences so that you can easily choose what is right for you.
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Lower Rates for Term Life
This insurance policy costs you less than the ROP, as insurance companies don’t have to take any risk. They also don’t have to return your premium or even interest at the conclusion of the insurance plan.
For instance, a 40-year-old non-smoker man has purchased a policy worth $250,000. He has to pay around $562 every year. If he opts for an additional premium rider, he will have to pay $880 every year. This way, ROP is expensive than the term life.
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Investment Potential
ROP is similar to an investment program. It is an ideal way to diversify your investment portfolio with an incredible investment plan.
The noteworthy part is that you don’t need to worry about decreasing value. You will also get the cash value in the end that you can invest in any type of investment.
In contrast, term life insurance doesn’t offer you this type of feature. And most of the time, you don’t get anything if you outlive the policy.
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Borrowing Potential
The insurer has the option to borrow against the ROP life insurance cash value. However, if you die before repaying the borrowed amount, your beneficiary will get less death benefit. This will also reduce the interest that you will earn on your monthly or yearly premiums.
When it comes to term life insurance, you can’t borrow any money from the company. Only your beneficiaries will get the set amount when you die during the term. However, this is the best option for the elderly, who may think that they will not outlive the term.
You also need to understand that not every company offers you a premium life insurance program. Additionally, just like other types of insurance programs, you need to search different companies to find the best option.
Choosing The Best Term Policy With Return Of Premium
Generally, more prominent insurance companies offer you ROP plans. Since the companies offer you different features in their insurance plan, so it’s best to compare several policies to find the right option. You need to understand the instance’s structure, such as whether you will get an interest or not.
Apart from this, you also need to look at different policies to determine which one offers you the cheapest incremental cost of the policy. If you want to know the return on the ROP policy, you need to compare the cost of ROP to the total premiums returned.
The lower the incremental cost will be, the greater the return on investment an insurer will get if they outlive the policy. You also need to know ROP companies offer different quotes for the return of premium riders and base policies.
So, it’s best to compare the quotes before making any decision. The ideal insurance plan may not be as good for you if it works well for other people. Since every person’s financial condition is different, you need to consider a plan according to your financial stability.
Lastly, when you are making up your mind, do remember that ROP is a tax-free investment, while the return on money invested in a brokerage account will follow the tax obligations.
Bottom Line
Life insurance is the best way to protect your family when you are no longer there to support them.
But most of the insurance policies don’t offer you benefits if you outlive the term. On the other hand, those that offer some perks, even at the end of the policy, are costly for many people.
For this reason, insurance companies have designed return of premium life insurance to protect you and your money, whether you outlive the term or not.
It offers you a 100% refund on premiums that you have paid at the end of the insurance plan. Plus, if you die, your beneficiary will get the death benefit that you have qualified for.
Because of having zero risks, this is the best option for seniors who are having trouble finding an affordable insurance plan. Just make sure to compare quotes from several companies before choosing any one of them as your insurance provider.
In this case, you need to compare quotes, look for the best features, and ask for all the details of the insurance plan. After knowing everything, you can easily make the final decision.
