Finding the Middle Ground with Return of Premium Term Insurance

Anyone who has ever shopped for life insurance has faced the difficult task of choosing between a term and a permanent policy. The choice isn’t as clear-cut as it may seem: while term insurance may be less costly in the short run, permanent insurance features an attractive cash benefit. Unsurprisingly, choosing between these two types of coverage intimidates many prospective policyholders. Some consumers are so baffled by this decision that they don’t purchase coverage.

Fortunately, there is a new type of coverage for those consumers who can’t decide what policy to buy. Return of premium term insurance (ROP) is a hybrid product that provides term coverage with a twist: policyholders get all their paid premiums back if they are still alive at the end of the term.

To understand how ROP combines the best traits of term and permanent insurance, let’s compare them side-by-side. If you purchase term insurance, you pay a set premium for a fixed period, usually between ten and thirty years. Term rates are low, especially if you are young and healthy. However, your money only buys you a death benefit: if you are still alive at the end of the term, you receive nothing.

On the other hand, permanent insurance provides the same death benefit protection and allows you to build cash value within your policy. This balance is handy if you need money for emergencies, college tuition, etc.; the downside is that you can expect to pay for this benefit through significantly higher premiums.

ROP gives the consumer the best of both worlds by protecting insurance along with the savings component. With such a policy, your beneficiary receives a lump sum death benefit if you die. But if you live through the term, the insurance company returns your premiums. While ROP is an appealing choice for all kinds of individuals, it is beneficial for purchasers who need to fill a temporary need, such as:

-Insurance coverage for a key employee

-Individuals who are planning to refinance their homes

-Divorcees who are required to purchase insurance as part of their divorce decree

While ROP has many advantages, consumers should remember that this coverage costs more than a typical term policy. And if you need to extend your policy past the initial term period, expect to pay significantly higher rates. The best strategy is to examine all options, carefully weigh the costs and benefits of each, and pick the one that can do the most for you.