Life insurance is an essential tool as a financial safety net for your family if you pass away. But you might not love the idea of making years of payments toward a policy that may never result in a payout (good news for you, not so much for your wallet).

Return of premium (ROP) term life insurance takes that possibility off the table. This type of policy refunds all the premiums you’ve paid if you’re still alive when the policy term is over.

Here are some factors to consider before committing to this type of life insurance policy.

What Is Return of Premium Life Insurance?

Return of premium life insurance is usually a type of term life insurance. You lock in a rate for the level term period, such as 10, 20 or 30 years. But unlike traditional term life, if you outlive an ROP policy the insurer will refund the premiums you paid.

How Return of Premium Life Insurance Works

With a typical term life insurance policy, you pay regular premiums during the time your coverage is in force. If you die during that time, your beneficiaries receive a life insurance payout known as the death benefit. If you’re still alive when the level term period is over, and you haven’t renewed the policy, there’s no payout and the policy ends.

ROP life insurance allows you to get those monthly premiums back if you’re still living at the end of the policy period. ROP life insurance is often a rider added to a regular term life insurance policy, and expect to pay more for it.

ROP life insurance is often a rider added to a regular term life insurance policy, and expect to pay more for it.

If you outlive your coverage, 100% of the money you paid in premiums during the term is returned to you, tax-free. However, if you fail to make your payments or cancel the policy, you may not get a premium refund (exact rules vary by insurer).

A return of premium feature is also sometimes available on types of permanent life insurance. For example, Nationwide offers a return of premium rider on one of its universal life insurance policies.

Life Insurance Policies with Return of Premium

Below are some examples of term life insurance policies with a return of premium option:

  • AAA Life Insurance: Available in 15-, 20- or 30-year terms, with $100,000 and up in coverage.
  • Cincinnati Life: The Termsetter ROP policy is available for level term periods of 20, 25 or 30 years. Minimum face amounts start at $25,000, depending on your health classification.
  • Country Financial: Available as a rider on 20- and 30-year term life insurance policies.
  • Illinois Mutual: Coverage ranges from $50,000 to $500,000, and terms can be 20 years, 30 years or to age 65.
  • Lincoln Financial: Available on TermAccel and LifeElements in 10-, 15-, 20- and 30-year terms.
  • Mutual of Omaha: Available on Term Life Express in 10-, 15-, 20- and 30-year terms.
  • Pacific Life: Available on PL Promise Term in 10-, 15-, 20- and 30-year terms and Pacific Elite Term in 10-, 20- and 30-year terms.
  • Protective: Available on Protective Classic Choice Term policies in term periods from 10 to 40 years.
  • State Farm: Coverage amount starts at $100,000 and is available in 20- or 30-year terms.

Why Get Return of Premium Life Insurance?

The main reason to buy a return of premium life insurance policy is risk mitigation: If you’re very uncomfortable with the idea of potentially outliving a term life policy, the higher cost may be worth it for you.

One major downside to ROP life insurance is that you essentially provide an interest-free loan to the insurer. And if you factor in inflation, you actually end up getting less money back at the end of the term since the refund doesn’t include any interest.

One major downside to ROP life insurance is that you essentially provide an interest-free loan to the insurer.

A better option may be to buy a traditional term life insurance policy, then take the extra funds you’d pay toward an ROP rider and put them in a safe investment account instead. Not only will you preserve some cash, but you’ll also end up with more money by the end of the policy term by putting your money where it can earn even modest returns.

How Much Does Return of Premium Life Insurance Cost?

Term life insurance is usually considered an affordable alternative to more expensive permanent life insurance options such as whole life and universal life insurance. Return of premium term life insurance is typically two to three times more expensive than regular term life insurance, according to Policygenius.

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Return of Premium Life Insurance Frequently Asked Questions (FAQs)

What is the catch with return of premium life insurance?

Return of premium life insurance is often two to three times more expensive than traditional term life insurance, according to Policygenius. Even though it may seem attractive to get premiums back if you outlive the term, the extra premium costs make it undesirable for most.

Is return of premium life insurance worth it?

Since ROP policies are much more expensive than traditional term life insurance policies, they are often not worth it. Instead of paying extra with the hope of getting your money back down the road, you could get a traditional term policy and invest the amount you save.