Many people regard insurance policies as avenues where they throw their money without any possibility of getting anything back. These thoughts discourage people from digging deeper into the industry to discover any policies that can enable them to get their money back. The good news is that there is one kind of life insurance with cashback: Return-of-Premium life insurance (ROP). ROP life insurance guarantees you a refund of the money you paid if you don’t die during the policy term. It’s one of the best policies for people who dislike the idea of paying for a policy without a payout.

What Is Return-of-Premium Life Insurance?

Return-of-Premium cover is a kind of insurance policy that returns all your premium payments if you’re still alive at the end of the policy term. The refund doesn’t attract tax, and you can use it for any purpose. However, if you die when the policy is still active, your beneficiaries will receive death benefits, just like any standard life insurance policy.

ROP guarantees equal death benefits and insurance installments for an initial duration, say 10, 20, or 30 years. It’s the best option for insurance applicants searching to receive vast sums of coverage at an affordable rate.

How ROP Compares to Standard Term Insurance

Term life insurance offers a life cover for a particular number of years, known as the term. If you die when the policy is active, your beneficiary gets the death benefits. However, if you outlive the term or delete the policy during the period, you get nothing. In contrast, a return-of-premium life coverage gives back part of or even the entire premium if you outlive the term of your policy and haven’t deleted the cover. If you delete the ROP cover before the term ends, specific insurance companies can refund a prorated percentage of the amount.

What Is the Catch with Return-of-Premium Life Insurance?

With ROP, your premiums don’t attract taxation. However, the cost of this life insurance is higher than the straight term insurance. Suffice to say, various factors determine the overall cost, including the insurance company, death benefit, and the duration of the term.

How Does Return-of-Premium Life Insurance Function?

Once you purchase an ROP policy, perhaps for a 10-or 30-year term, your beneficiaries receive the death benefit if you perish when the policy is active. However, you get back the exact amount you paid if you outlive the ROP term life insurance policy. The amount you receive isn’t subject to taxation as it reflects a return of your premiums. However, with a standard term life cover, if you outlive the policy, you receive nothing.

However, ROP policyholders pay vast amounts to enjoy the money-back feature. Here is how it works:

Obligation for policyholders: monthly or yearly premiums are needed to keep the policy active.
Policyholder outliving the term: If the policyholder doesn’t die during the ROP term, they get back tax-free premiums paid when the policy was active.
Policy cancellation: If you stop paying premiums or delete your ROP, you may not qualify for a premium refund. However, this depends on the type of insurance company.

What Are the Pros and Cons of Return-of-Premium Life Insurance?

A significant benefit of an ROP is that you receive your premium payments if you live past the term. But, premium return-backs are only part of the perks of this policy. Many people select this policy for the following reasons:

Tax-free premiums: A key reason why many people choose an ROP is that they get back their entire premiums without being taxed. This is a massive benefit to policyholders who work hard to pay their premiums annually or monthly. It’s only fair that if nobody collected their death benefits, they get back their total amount. Many people ask themselves this question, ‘can we reclaim insurance premium tax?’ The answer is yes; you can claim money back if it’s erroneously deducted from your ROP premiums for tax.
Quick approval: It’s much easier to get approval for this policy if you want it. You only need to search online for various quotes, choose the one you prefer, and fill out an online application form. You can do this without the need to speak to agents or brokers.
Choose your term duration: ROP is flexible regarding the term period you prefer. Here, you have many choices, including 10, 15, 20, 25, and 30-year durations. With ROP, you can plan your finances as you pay a fixed amount monthly or yearly.
Easy to change your policy: when your ROP term life insurance policy approaches the end of its term, you may decide to convert it into a standard life cover. This process is pretty simple as one doesn’t need to provide insurability evidence, provided they’re below 65 years.
Use your premium returns for what you want: Once you get your premium returns, you’re free to use them to make any purchase, investments, or even pay for S-DVI insurance premiums. For example, you can use them to pay down for your home, clear a student loan, or take a holiday. It gives you great comfort and security to know that there’s money on your way soon, which you can use for anything you want.

Cons

An ROP term life insurance has various downsides, including:

Health requirements: If you aren’t in perfect health, the extra costs for having an ROP may add up.
Rates based on age: Often, middle-aged people and up are discouraged from buying ROP term life insurance.
Surrender value: if you stop your ROP term policy early, you may receive some premiums. However, many insurers provide no premiums if the insured stops paying premiums before the end term.

Is Return-of-Premium Life Insurance Worth It?

An ROP life insurance cover is suitable for you if you can pay the additional amount each month or year when the coverage is active. However, this cover may not suit many insurance shoppers who require a basic life cover policy.

You’ll be happy to get massive sums of money when nearing retirement. However, you need to note that there’s no additional money besides what you paid as premiums. Sometimes, it may make no sense to accumulate your cash somewhere without any interest. And remember, due to inflation, you may be receiving less money than what you paid.

Featured Image: Megapixl