Rop Life Insurance: A Viable Option For Older Adults?

Return of Premium (ROP) life insurance is a type of term life insurance that refunds your premium payments if you outlive the term of your coverage. In exchange for this benefit, you pay more in premiums while the policy is in force. ROP insurance is more expensive than a basic term life insurance policy, and it's not offered by many companies. However, it can be a good option for those who want the security of life insurance but are also looking for a way to save money. ROP policies are particularly attractive to older adults who want to ensure their loved ones are provided for if they pass away but would also like the opportunity to recoup their premiums if they live to an advanced age.

Pros and cons of ROP life insurance

Return of Premium (ROP) life insurance is a type of term life insurance that provides a death benefit to beneficiaries if the policyholder dies during the term of the policy. However, if the policyholder outlives the policy term, the insurance company will refund the premiums paid.

Pros

• ROP policies are a form of forced savings, as your premiums are returned if you outlive the policy term.
• Premiums are refunded relatively quickly, in as little as 10 years, depending on the length of the policy term.
• Refunded premiums are not taxable.
• ROP policies may cost less than whole life insurance and other types of permanent life insurance.
• ROP policies build cash value over time, which is not typical for term life policies.
• ROP policies can be a good option for those who want life insurance coverage but are hesitant to invest in basic term life insurance because they fear losing money if they don't make a claim.
• ROP policies can offer a respectable return on investment for younger, healthy individuals.
• ROP insurance is more affordable than universal or whole life insurance.
• Refunded premiums are tax-free, which may be attractive to those in higher tax brackets.
• ROP policies are suitable for those with a low-risk tolerance for investing in stocks and bonds.
• The refund from an ROP policy can be used to convert a term policy into permanent coverage at the end of the term.

Cons

• ROP policies are more expensive than basic term life insurance policies.
• The additional premium costs of an ROP policy may be better invested or saved elsewhere, such as in an IRA account, where higher returns and lower fees can be achieved.
• The value of refunded premiums is depreciated due to inflation.
• ROP policies are not offered by many insurance companies, so finding the right policy may be challenging.
• If the policyholder does not survive the term, the additional premiums paid for an ROP policy will not be refunded.
• If an ROP term life policy is surrendered early, it may be difficult to get premiums back, as many companies do not offer premium returns when a policy is cancelled within the first few years.
• ROP policies are unsuitable for middle-aged and older people as they become cost-prohibitive with age.
• The refund amount from an ROP policy typically reflects the sum of premiums paid rather than investment growth, and astute investors may find higher returns in other investment avenues.

How ROP life insurance works

Return of Premium (ROP) life insurance is a type of term life insurance policy that provides a death benefit to your beneficiaries if you die during the term of your policy. However, if you outlive the policy term, ROP insurance refunds the premiums paid, which is not the case with standard term life insurance.

With regular term life insurance, you can lock in a level rate for a set period, often between 10 and 30 years. When the term is over, you can usually renew the policy annually but at higher rates. Your beneficiaries will only receive a payout if you die while the policy is in force.

With ROP insurance, you can get your monthly premiums back if you're still living when the policy term expires. You can add ROP life insurance coverage to an existing policy in the form of a return of premium rider, or purchase it as a standalone policy. The catch is that ROP insurance is more expensive than standard term life insurance.

When you outlive an ROP policy term, you get up to 100% of your premiums returned tax-free, minus any administrative fees and related charges. You may not get a premium refund if you missed payments or cancelled the policy, although this varies among insurers.

Another benefit of ROP life insurance is that it builds cash value over time, which is uncommon for term life policies. With enough cash value, policyholders can borrow against the policy, withdraw money, or surrender the policy for cash if coverage is no longer needed.

ROP life insurance companies

Return of premium (ROP) life insurance is a type of term life insurance that provides a death benefit to your beneficiaries if you die during the term of your policy but refunds the premiums paid if you outlive the policy term. This type of insurance is not offered by many companies, but here are some of the best ones that do:

• Mutual of Omaha: Mutual of Omaha is our top pick for ROP term life insurance. Qualified applicants can get a same-day decision on coverage and skip the medical exam. The company includes a terminal illness living benefit on its ROP policies. You can convert your policy to a permanent life insurance policy until the end of the policy’s term or your 70th birthday, and you can even renew coverage after the level-term period until age 100. Mutual of Omaha also offers a wide variety of riders on its ROP policies, including a waiver of premium rider, accidental death benefit, and children’s term rider.
• AAA: AAA has 15-, 20-, and 30-year terms available on its ROP policies, which is more than is typical. If you prefer the ease and convenience of no-medical-exam life insurance, then AAA may be a good fit. However, if you want to customize your policy with riders, you won’t have that option with AAA’s ROP policies.
• Assurity: Assurity is a certified B corporation, which means the company meets high standards of accountability and transparency, and it's committed to social equity and the environment. It also receives fewer complaints than expected for a company its size. Plus, you can add a range of riders to your coverage, including a disability waiver of premium and a critical illness benefit. The conversion period for ROP and other term policies lasts until just two years shy of the policy’s level term period (or until you turn 65).
• State Farm: State Farm earned a superior rating from AM Best—the highest rating of any company on this list. AM Best ratings measure how strong and stable an insurance company is and how likely it is to meet its contractual obligations now and in the future. In addition to being financially stable, State Farm came in first in a J.D. Power 2021 customer satisfaction survey. We also like that you can convert your ROP coverage to a permanent policy until the end of the term or age 75, or renew the term until 95. Terms are available for 20 and 30 years, and you can add a premium waiver or children’s term rider to your policy.
• John Hancock: John Hancock's wellness perks make it stand out from the other life insurance providers. Its Vitality PLUS program gives policyholders up to 25% in premium cashback every year that they participate in the program, plus discounts on a variety of wellness products, tools, and subscriptions. ROP policies are available for 25- and 30-year terms, may not require a medical exam, and may be approved the same day. They also include a terminal illness rider at no extra cost. But policyholders who purchase the ROP rider are only eligible to receive refunds of up to 75% of premiums paid at the end of the level-term policy. The biggest complaint about the ROP version of John Hancock’s policies is that they’re not convertible and they’re not available to applicants over 50 years old.

ROP life insurance cost

Return of Premium (ROP) life insurance is a type of term life insurance policy that provides a death benefit to your beneficiaries if you die during the term of your policy. However, if you outlive the policy term, ROP insurance refunds the premiums you paid, whereas with a standard term life insurance policy, you won't receive any payout if you outlive the term.

ROP insurance is more expensive than a regular term policy, and only a small number of companies offer it. The cost of ROP insurance depends on several factors, including age, health, and whether or not you smoke. For example, a healthy 40-year-old non-smoker looking for a 20-year, $500,000 policy can expect to pay around $1,600 for a man and $1,450 for a woman.

In addition to the cost of the premiums, there may also be additional costs for riders, which are extra benefits that can be added to a policy for an additional fee. Riders offered by ROP insurance companies include a waiver of premium rider, accidental death benefit, and children's term rider.

When considering the cost of ROP insurance, it's important to keep in mind that the refunded premiums are not invested and don't earn interest, so the value is depreciated over time due to inflation. As a result, some financial advisors recommend investing the difference in premium costs between a standard term policy and an ROP policy in products with higher potential returns.

ROP life insurance riders

ROP life insurance is a type of term life insurance that provides a death benefit to your beneficiaries if you die during the term of your policy but refunds the premiums paid if you outlive the policy term.

An ROP life insurance rider is an optional add-on to a term life policy that, if you outlive the policy term, pays you all or some of the money you spent on policy payments. Without an ROP life insurance rider, if you're still living when the policy term ends, your policy will expire without paying a benefit.

If you purchase an ROP life insurance rider with your term life policy, you'll make monthly payments to keep your policy active. If you're still living when the policy term ends, the insurance company will pay back all or some of the money you spent on payments, depending on your policy, in the form of an ROP benefit. The money back from your term life insurance may not be taxable, unless there's a gain; consult a financial advisor to understand these potential implications. The refund might not include fees and other riders you have on the policy, and missing payments can disqualify you from getting your ROP benefit.

Am I entitled to an ROP rider on my term life insurance?

You're typically only entitled to getting your term life insurance money back if you purchased an ROP rider with your term policy, you made your payments on time, and you're still living when the term ends.

An ROP rider typically refunds you the total premium you paid for your base policy and the ROP rider. It may not refund fees or the premium you paid for other riders on your policy. Being late on payments may reduce your refund or disqualify you from receiving one at all.

Should I get an ROP rider?

An ROP rider is typically for risk-averse individuals who can afford the increased monthly premium and want financial protection for their loved ones. It provides added security when purchasing life insurance. Plus, depending on your policy term length, your return of premium could line up with your retirement age, providing a benefit around the time you stop earning an income. Even if you don't fit that profile, it's possible that you could still find value in an ROP rider. If you're considering life insurance with an ROP rider, speak with a financial advisor about the potential trade-offs and tax implications for your situation.

Frequently asked questions