How Return of Premium Life Insurance Works

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return of premium life insurance
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If you’re one of the many people who are apprehensive about choosing a term life Insurance due to its limited nature, you might want to look into an alternative method of insuring your life. 

An excellent option for those looking to gain back their paid premiums even if they outlive the term of coverage is Return of Premium life insurance.

Return of Premium Life insurance (ROP) is a policy that pays back the amount you’ve spent on premiums at the end of the term. While conventional life insurance is only repaid if the insured passes away, ROP can pay back your contributions even if you outlive the coverage period.

In the following sections of this article, I’ll thoroughly explain the plan’s characteristics along with factors you’ll need to consider before choosing a life insurance option that’s ideal for you.

What is Return of Premium Life Insurance?

Return of Premium Life Insurance is an insurance policy that returns all the premiums paid if the insured survives the policy’s term. Upon the insured’s death, the policy will return a portion of said premiums to a beneficiary chosen by the deceased.

The premiums you pay throughout the term for coverage are guaranteed to be paid back to you regardless of whether you outlive said term or not. 

When the former happens, you’ll receive the total amount spent on this type of insurance. For example, if your premiums over time have reached a sum of $50,000, you’ll be paid back this exact amount upon the end of the term.

On the other hand, if death does occur during the insurance’s term, the repayment policy can vary from company to company. In most cases, the beneficiaries receive the full amount accumulated by the policy, or, at least, a considerable part of it.

Having said that, the specific amount can be significantly different depending on your insurer, while others don’t pay anything at all. Therefore, before choosing your ideal plan, make sure to go through the policy carefully to understand its implications as best as possible.

How Does Return of Premium Life Insurance Work?

Return of Premium life insurance works by requiring higher premiums in exchange for the guarantee it offers on paying them back regardless of whether the insured passes away or not.

You can buy ROP insurance by itself, or you can add it to a traditional policy to better protect your assets.  You can make ROP payments monthly or annually, depending on the specific policy your insurer provides. 

These payments are essential in maintaining your coverage. Although the premium in itself can vary depending on your age or health condition, they usually tend to cost at least twice as much as a standard term life plan.

When the insured outlives the policy’s term, the whole sum of premiums paid throughout this period will be refunded without any interest. The income you’ll receive at this point is also not taxable, which means that the original sum will be fully paid back without any omissions.

On the other hand, if the insured passes away, the chosen beneficiaries will receive a preliminary decided amount of this sum. This amount will vary depending on your policy plan, but most insurers do offer partial to full repayment of your premiums.

Where Does Return of Premium Differ From Term Life Insurance?

Return of Premium and term life Insurance differ regarding the protection they offer and their respective premiums. While ROP, unlike its alternative, will pay back these premiums even if you outlive the policy’s term, they can cost twice as much as the standard counterpart.

The insurance policy works similarly throughout its duration in both these alternatives. 

You’ll need to pay monthly or annual premiums to maintain your life coverage, which will pay a predetermined sum to your chosen beneficiaries in the event of your death.

This is where the similarities end between the policies. In the event the insured outlives the policy’s term, the outcomes can be very different depending on the type of insurance you’ve bought.

When choosing a standard term life insurance, you won’t receive any of your money back, meaning that the investment made in premiums throughout your life will be entirely gone. 

This is why many people are apprehensive about choosing this type of policy, as it may lead to a significant loss of assets. On the other hand, a Return of Premium Life Insurance will pay back the full sum of paid premiums, interest, and tax-free.

Another main difference between the policies is their price. 

Although ROP offers added protection and guarantees, it can be very costly to purchase. While you’ll eventually be able to regain these funds back, if you can’t afford the premiums in the first place or are in a very poor health condition, ROP may not be the ideal choice for you.

Best Return of Premium Life Insurances

I previously mentioned that some ROP policies heavily depend on the insurer you choose to buy from. It’s very important to make sure that you’re signing a contract with a reliable and trustworthy company in order to make the most financially-sound decision you can. 

Here are some of the insurers that offer the best ROP policies: 

  • Assurity Life Insurance: This insurer offers a highly personalized experience, tailoring the policy to your needs. They also provide the option of converting your chosen plan to permanent if needed. The main drawback is the fact that they don’t offer shorter-term coverage plans.
  • AAA Life Insurance: This offers some of the highest coverage limits in the industry and accompanying decade-long terms. Having said that, you’ll have to keep in mind that you won’t be able to use any additional riders with this plan.
  • State Farm: This insurer offers some of the best ROP policies in the industry. Their plans are customizable and easily convertible to a permanent option. They offer 10-year terms, and you can also qualify for multi-policy discounts. They lack a bit of flexibility regarding the longevity of your ROP coverage, as they only offer two terms. 

Should You Buy Return of Premium Life Insurance?

Whether you should buy Return of Premium Life insurance depends on your budget, risk tolerance, and overall health. If you have a low-risk tolerance and are in good health, buying an ROP would be ideal if your budget allows for it. 

Otherwise, go for a standard Term Life Insurance.


ROP Life Insurance can be an excellent way to keep your assets secure when insuring your life. Therefore, they can make for a great alternative to conventional life insurance if you find an option that’s affordable enough and in sync with your needs and wants.


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I'm Donny. I'm a world traveler, investor, entrepreneur, and online marketing aficionado who has a big appetite to compete and disrupt big markets. I thrive on being able to create things that impact change, difficult challenges, and being able to add value in negative situations.

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