Term Life Insurance: Rop Benefits And Beyond

Return of Premium (ROP) term life insurance is a type of insurance policy 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. Unlike a standard term life insurance policy, you may receive a payout even if you outlive the term. However, you will pay considerably more for ROP insurance than a regular term policy. ROP term life insurance is not offered by many companies, but some examples include Mutual of Omaha, AAA, Assurity, State Farm Life Insurance, and John Hancock Life Insurance.

Return of Premium (ROP) Life Insurance Explained

Return of Premium (ROP) life insurance is a type of term life insurance that allows you to reclaim your premium payments if you outlive the policy term. In other words, if you're still alive when the policy expires, you get a refund on the money you spent on policy payments. This is very different from a standard term life insurance policy, where you don't receive any payout if you outlive the term.

With ROP life insurance, you pay regular premiums to keep your policy active, just like you would with a standard term life insurance plan. The difference is that with a standard plan, these premium payments are usually non-refundable and kept by the insurance company. With ROP life insurance, if you outlive the term, you can reclaim these payments.

For example, let's say you take out a 20-year ROP term life insurance plan. If you pass away within the 20-year term, your family will receive the death benefit and the premium payments will be kept by the insurer. But if you outlive the 20-year term, you will be refunded all or part of your premium payments.

Pros and Cons of ROP Life Insurance

Pros

• The ability to reclaim past premium payments is the biggest advantage of ROP life insurance. If you outlive your term, you can usually receive a lump-sum payment of all the premiums you paid. This can be particularly useful if you have new expenses to cover later in life, such as a mortgage or retirement plan.
• Any returns generated from this type of plan generally won't be taxed.

Cons

• The cost is the biggest disadvantage of ROP life insurance. To offer the benefit of reclaiming premium payments, ROP life insurance is usually much more expensive than a traditional term policy.
• The higher cost may be comparable to whole life insurance, but this depends on the specific companies and plans.
• There is a chance you won't be able to see the benefit of reclaiming premium payments if you don't outlive the term.
• If you terminate your policy early, you likely won't get your premiums back.

A return of premium life insurance policy may be worth it if you can afford the higher premium and you're uncomfortable with the idea of potentially outliving a term life policy. However, if you don't outlive your term, it will have been much more expensive than a traditional term plan, while essentially offering the same death benefit.

It's important to understand that you aren't receiving any additional money with ROP life insurance, only the money you have previously paid into the policy. You may be better off with a standard term life insurance policy, where you can save the difference in premium payments and invest or save it for a higher return.

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 their policy. If the policyholder outlives the policy term, the premiums they have paid are refunded.

Pros of ROP Life Insurance

• The ability to reclaim past premium payments if you outlive the term of your policy.
• This can be particularly helpful if there are any new expenditures you'll have to cover later in life, such as a mortgage or retirement plan.
• ROP life insurance can function as a savings account with a bonus life insurance add-on.
• Returns generated from this type of plan generally aren't taxed.
• ROP plans offer an add-on benefit that is guaranteed after the maturity of the plan.
• The survival benefits are returnable in full after maturity and can be viewed as an investment component.
• Payable premiums are eligible for tax benefits.
• In case the policyholder does not survive the policy term, the nominee(s) are eligible to receive the entire sum assured, just like a traditional term plan.
• ROP plans come with an option to be returnable, meaning that if the policyholder decides to discontinue the plan, the premiums paid till the date are returned as a maturity benefit.

Cons of ROP Life Insurance

• The cost. ROP life insurance is usually much more expensive than a traditional term policy.
• The higher cost may be comparable to whole life insurance, but this depends on the specific companies and plans.
• There are fewer term options available, such as only a 20- or 30-year term period.
• If you terminate your policy early, you likely won't get your premiums back.
• The value of the premiums you are refunded is depreciated due to inflation.
• Many insurers don't offer an ROP rider, so finding the right policy may be challenging.

ROP Life Insurance Cost

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. If you outlive the policy term, you will be refunded the premiums you paid.

ROP life insurance is typically two to three times more expensive than regular term life insurance. This is because you are essentially providing an interest-free loan to the insurer. When you factor in inflation, you end up getting less money back at the end of the term since the refund doesn't include any interest.

If you decide to go for an ROP policy, it's important to shop around for the best premium rates. Some providers will take your credit score into account when determining your premium, so it may be helpful to improve your credit score before applying.

• Mutual of Omaha: Offers same-day coverage decisions and the option to skip the medical exam. Includes a terminal illness living benefit and a wide variety of riders.
• AAA: Offers 15-, 20-, and 30-year terms, which is more than is typically available. Allows you to apply without a medical exam.
• Assurity: A certified B corporation with high standards of accountability and transparency. Offers a range of riders, including a disability waiver of premium and a critical illness benefit.
• State Farm Life Insurance: Has the highest financial stability rating and very few customer complaints. Offers a range of riders and the option to bundle with a State Farm auto policy for additional discounts.
• John Hancock Life Insurance: Offers a wellness program that provides discounts and rewards for healthy living, including cashback on premiums and discounts on wellness products and tools.

ROP Life Insurance vs Other Policy Types

ROP Life Insurance vs. Other Policy Types

Return of Premium (ROP) life insurance is a type of term life insurance that refunds your premium payments if you outlive the policy term. In exchange for this benefit, you pay more in premiums while the policy is in force.

Level Term Life Insurance

Level term life insurance is the most common type of life insurance. It is issued for specific terms, often 10, 20, or 30 years, and you pay the same premiums for the entire term of the policy. At the end of the term, your coverage simply ends, but you may be given the option to extend the term at a higher premium.

Increasing Term Insurance

With increasing term insurance, you can increase your death benefit coverage at certain milestones of the policy term. These milestones are stated at the inception of the policy. This type of policy is valuable for families who may need more coverage in the future as their needs change. Policy premiums are typically higher than basic term life policies.

Decreasing Term Insurance

This type of policy decreases the death benefit at predetermined times during the policy's life. This may be a good option for families as children grow up and gain financial independence.

Convertible Term Insurance

Convertible term insurance can be converted into a different kind of insurance plan later on. This may be a good option if you expect your financial priorities to change in the coming years. For example, you may decide that a whole life policy is more appropriate coverage for you and your loved one's needs.

No Medical Exam Life Insurance

When you buy a term life insurance policy, part of the process usually involves a medical exam to assess your health and risk factors. A no-medical exam insurance policy bypasses this process, but the trade-off is that your death benefits will be significantly lower for the first couple of years the policy is in force.

ROP Life Insurance Companies

Return of Premium (ROP) term life insurance is a type of policy that provides a death benefit to your beneficiaries if you pass away during the term of your policy but refunds the premiums paid if you outlive the policy term. In contrast, with a standard term life insurance policy, you won't receive any payout if you outlive the term. Due to this added benefit, ROP life insurance is usually more expensive than a regular term life insurance policy.

Mutual of Omaha

Known for its generous conversion options, Mutual of Omaha is considered the best overall ROP term insurance company. 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, and you can convert your policy to a permanent life insurance policy until the end of the policy term or your 70th birthday, whichever comes first. Mutual of Omaha also offers a range of riders on its ROP policies, such as a waiver of premium rider, accidental death benefit, and children's term rider, all for an additional cost. However, the company only offers a 30-year term for ROP policies, and its rates could be better with companies that offer accelerated issue underwriting.

AAA

AAA stands out for offering more term options than is typical, with 15-, 20-, and 30-year terms available on its ROP policies. AAA is one of the few companies that offer no-medical-exam underwriting, making it a good choice for those who prefer convenience. However, AAA's ROP policies do not allow for any riders, and you cannot start claims online. The company has also received more complaints than expected.

Assurity

Assurity is a certified B corporation, committed to social equity and environmental responsibility. It receives fewer complaints than expected and offers flexible conversion options. You can add various riders to your coverage, including a disability waiver of premium and a critical illness benefit. However, Assurity's financial strength rating is the poorest among the top ROP companies, and you cannot apply for coverage without the assistance of an agent.

State Farm Life Insurance

State Farm is the best choice for financial stability, as it has the highest financial stability rating of any company on this list. The company also ranks first in a J.D. Power 2021 customer satisfaction survey and has very few customer complaints. You can convert your ROP coverage to a permanent policy until the end of the term or age 75 and renew the term until age 95. State Farm offers 20- and 30-year terms and allows you to add riders, such as a premium waiver or children's term rider. You can also bundle this coverage with a State Farm auto policy for additional discounts.

John Hancock Life Insurance

John Hancock's wellness perks set it apart from other providers. Its Vitality PLUS program offers policyholders discounts and rewards for healthy living, including cashback on premiums and savings on wellness products and subscriptions. ROP policies are available for 25- and 30-year terms and may not require a medical exam. They also include a terminal illness rider at no extra cost. However, John Hancock's ROP policies are not convertible, and they are not available to applicants over 50 years old. Additionally, policyholders who purchase the ROP rider are only eligible to receive refunds of up to 75% of premiums paid.

Frequently asked questions