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Return of Premium Life Insurance

woman researching cost of return of premium life insurance policy

Written By Doug Mitchell

Doug Mitchell, CLU holds a BA degree in Finance from Auburn University as well as having obtained a Chartered Life Underwriter (CLU) designation from The American College in Bryn Mahr, PA.  Doug has spent close to 30 years in the insurance and financial planning industry and has held licenses to sell securities, long-term care insurance, health.  Doug is also a financial blogger addressing the topics of life insurance, annuities and retirement income planning.

Holly Mitchell  &

Holly Mitchell’s background in life insurance insurance goes back to 1985 when she worked for her father who was a New York Life agent. Holly has a marketing degree from Auburn University and has had a life insurance license since 2008. In addition to advising life insurance for customers all around the country, Holly is our website fact checker.

Rob Pinner   &

Rob Pinner is the founder and CEO of Pinner Financial Services servicing all 50 states. Rob started his insurance career in 2002.

Louis LaBash

Results-driven and innovative life insurance professional with 30 plus years of life insurance industry sales and marketing experience. Recognized as a pioneer in the field, leveraging phone and internet channels to exceed personal sales of over $100 million during the first decade of the 21st century. Creator of a highly effective intuitive IUL life insurance sales software that facilitated the sale of millions of dollars of indexed universal policies by numerous life insurance agents. Proven track record as a Managing General Agent (MGA), Life Agent, IUL Life Insurance Sales Software developer, and leading-edge creator of insurance marketing tools, educational content, and delivery systems.

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Today’s life insurance policies often come with many bells and whistles, offering policyholders some options that might even sound too good to be true.

One case, having all of your premiums returned if you survive the term of the policy, maybe a prime example.

…unless you know where to look for the hidden costs.

You may not be aware, but you have more than a hundred options to choose from when it comes to carriers.

When you’re talking to an insurance agent, it’s easy to get wrapped up in all of the jargon.

If you don’t know what they are talking about, you can get tricked into buying a more expensive policy for protection or add-ons you don’t really need.

Below we’ll tell you everything you’ll need to know about the product, available life insurance companies, and rates you can expect to pay.

What Is Return Of Premium Life Insurance?

Return of premium life insurance is a type of coverage that will return the premiums that were paid for the coverage if the insured on the policy survives throughout the entire “term,” or time period, of the policy.

With this type of policy, you are guaranteed that either your beneficiary will receive the death benefit or that you will receive your premiums back.

Oftentimes, these plans are marketed to those who believe that term life insurance is the best type of coverage to own, yet don’t want to take the chance that they will pay premiums into the plan for years without any type of return should they outlive the term of the policy.

How Does Return of Premium Life Insurance Work?

When an individual purchases a term life insurance policy, the coverage will typically range from between 5 and 30 years.

The premium is based on the insured’s age and health status at the time that he or she applies for the policy.

If the insured were to pass away during the time that the policy is in force, the named beneficiary (or beneficiaries) will receive the death benefit proceeds.

If, however, the insured remains alive past the policy’s stated time frame, or term, then the coverage will expire.

In this case, there are many insureds who feel that they will have “wasted” their premium dollars.

In fact, one of the most common reasons people won’t buy another insurance policy is because they paid for the first one, and when the term was over, they thought about all the money they could have “saved” by not having an insurance plan in place.

Even if you don’t have to use your life insurance policy, you still need to have one.

Cost of Return of Premium Life Insurance

While the return of premium policies do provide the chance to receive one’s premiums back, they do so at a higher premium cost upfront.

Therefore, before going headlong into a return of premium life insurance policy, it is important to factor in the opportunity cost of the additional funds that you will need to put forth into the policy in order to obtain the guarantee.

The example below shows the quotes for a $1 million term life insurance policy quote for a 35-year old male who is a healthy, non-smoker.

These figures show both the premium cost of a regular term insurance policy, as well as the premium cost of 15, 20, and 30-year return of premium policies.

While this return is not negative, it is still barely high enough to beat the historical rate of inflation.

Given this information, in most cases, it would make more sense for an individual to purchase a regular term life insurance policy and invest the “difference” somewhere else.

Years Annual Term Cost Annual Cost of ROP Difference Total Premium Return
15 $585 $2,666 $2,081 $39,990 3.04%
20 $665 $1,926 $1,261 $38,520 3.88%
30 $885 $1,748 $863 $52,440 4.23%

Important ROP Criteria To Consider

In addition to pure return, there are other criteria to consider with a return of premium life insurance policy.

Other factors should include:

Loss of Flexibility

There may come a time throughout the term of your policy when you come across a cheaper form of coverage. Unfortunately, with a return of premium plan, you are essentially “locked-in” for the long term.

If you cancel before your policy’s term is up, you lose the guaranteed right to receive your premiums back.

Financial Strength of Provider

The insurance company making the guarantee is also important because if it were to go out of business, it is highly unlikely that its policyholders will get all of their premiums back – and possibly even not any of them.

Research Other Carriers

As you can see from the quotes above, a standard non-ROP policy is drastically cheaper. But these are only quotes from a single carrier.

Every carrier will have a different method for determining their insurance rates.

Not every carrier will have as drastic differences, while others are going to have an even wider gap.

When you’re deciding which kind of policy will meet your needs, you need to consider other carriers.

If you were shopping for a home or car, you aren’t going with the first one.

Why would you pick the first insurance carrier you came to?

Final Thoughts on Return of Premium Life Insurance

Although a return of premium life insurance may at first appear to offer you a nice guarantee, it is important to thoroughly understand how the product works.

It’s important to know whether or not you are truly receiving any real benefit at all.

In most cases, this type of policy will cost more in up-front premium due to its return of premium guarantee.

In many instances, even though you may receive your paid-in premiums back, you will either break even – or even lose a small percentage of money due to inflation.

With this in mind, you should make a careful comparison with how much could be earned if you invested the difference in premiums into a safe, long-term investment where you could access your money regardless of whether or not you keep your life insurance coverage in force.

If you have questions about how we might be able to assist you in moving forward, please contact us.

As we mentioned in the “other criteria” section, you need to look at other carriers. There are a lot of companies that sell ROP term insurance plans. We don’t expect you to examine each one.

You don’t have to become an insurance expert to secure the cheapest premium. We can do all of the digging and comparing for you. All you have to do is use our quote tool and browse all of the carriers and policy options.

Instead of going company to company, use the link below. All you need to do is to answer some simple questions. In a matter of minutes, you’ll have quotes from the biggest companies.

Picture of Doug Mitchell, CLU

Doug Mitchell, CLU

Doug Mitchell, CLU holds a BA degree in Finance from Auburn University as well as having obtained a Chartered Life Underwriter (CLU) designation from The American College in Bryn Mahr, PA. Doug has spent close to 30 years in the life insurance and financial planning industry and has held licenses to sell securities, long-term care insurance, health. Some other notable items about Doug: Top of the Table Million Dollar Round Table member (MDRT). (MDRT is a global, independent association of the world’s leading life insurance advisors) | Premier Partner with Lincoln Financial and Cabinet Member | Served two years as President of the Auburn/Opelika Association of Financial Advisors | Life Millionaire status at Horace Mann Insurance Company and was awarded the Life Agent of the Year Award | New York Life, Executive Council Member | Currently serves as President of Ogletree Financial, a life insurance General Agency. | Doug is also a financial blogger addressing the topics of life insurance, annuities and retirement income planning.

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