What Do I Need to Know About Investing in ROP Life Insurance?

Term life insurance does not include investment features like other types of life insurance, but with a return-of-premium (ROP) policy, you can invest in something unique: yourself.

The policy’s structure is straightforward. According to the LIFE Foundation, if you keep a policy in force for the entire term, your insurance company will refund you all of your premium payments from that period once the term is over.

There is, of course, always a catch. The premiums you must pay under this policy are significantly higher than standard term life insurance premiums. This can mean a price increase of up to 30% in some cases.

Return of premium policies are popular among those seeking term insurance but wishing to recoup their premium payments, according to David Theile, Director of Life/Health Product Management at State Farm.

“The value of the extra cost is determined by the importance of receiving paid premiums back,” Theile explained.

Thiele recommends comparing the difference between the ROP premium, regular term premiums, and the after-tax interest rate required to accumulate the amount of benefit that will be returned to you at the end of the term to determine the value of a ROP policy.

Because of the current state of the economy, life insurance companies have had to raise the cost of policies that include a ROP rider. The reasons for recent ROP product changes are discussed in the Society of Actuaries newsletter.

Remember that because people are living longer lives, term insurance rates have decreased. If you have a standard term policy, you can always replace it with a less expensive policy or convert it to a whole life insurance policy.

If you have a return-of-premium policy and cancel it before the term expires, you will have paid a much higher premium for life insurance without the benefit of a full refund.

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