Life Insurance
Accidental Death
Insurance 101
Live Chat
Sign In
Apply Now
Life Insurance

Essential Guide to Return of Premium Term Life Insurance

By Jessica Sillers Jun 1, 2022

In this article

What Is Return of Premium Life Insurance?

Are ROP Life Insurance Policies Legit?

Is ROP Worth the Money?

When Is a Return of Premium Policy Worth It?

Term life insurance is a good tool to offer peace of mind and financial protection if you were to pass away. Admittedly, one drawback of term life insurance is that generally, outliving the policy means losing the money you paid for your coverage. No one’s complaining about being alive, but it can be annoying to think you won’t have something tangible to “show” for your years of responsible coverage.

A return of premium life insurance policy is one option that can let you have your coverage and keep your premium, too. Is this option good or too good to be true? Here’s the breakdown of what to look for in a return of premium life insurance policy, when it can be a smart option and when traditional term life insurance might be a good fit.

What Is Return of Premium Life Insurance?

A typical term life insurance policy offers you coverage during a specific period of time, called the term (usually 10 to 30 years). If you pass away during the term, your beneficiary gets a death benefit payout. If you outlive the term, the money you’ve paid in premiums is gone.

Return of premium (ROP) term life insurance also offers coverage for a particular term, but if you’re still alive at the end, you can get back the premium payments you paid into the policy. For some people, an ROP life insurance policy can offer the best of both worlds: If you pass away, your beneficiaries get a death benefit for better financial security, and if you don’t, you get your money back.

ROP life insurance policies can exist as stand-alone policy. The ROP aspect can also be added as a rider to a traditional term life policy. An ROP policy may offer a cash value component you can borrow from, meaning you can borrow against the premiums you’ve already paid into the policy.

Are ROP Life Insurance Policies Legit?

Paying for coverage and getting the money back can sound too good to be true. It’s always smart to investigate the legitimacy of an option before moving forward. In the case of ROP policies, they are a real and reputable form of insurance. As with anything, there are some nuances worth considering.

First, ROP policies are relatively rare. You may only find a handful of companies that offer a return of premium term life insurance policy or ROP rider for a traditional term life policy. That means less room to compare quotes and other benefits.

Generally, the return of premium amount is simply the total premiums you paid into the policy during the term. That is, you don’t get interest. It’s also important to stay current on your premium payments. If you lapse in your payments or end the policy before the term expires, your agreement may state that you forfeit the premiums you’ve already paid. Insurance providers make money on ROP life insurance policies in a few ways. First, not everyone stays current on their premium payments. Lapsing in payments or surrendering a policy could forfeit the premiums a customer has paid to that point. Insurance companies may also have their own internal processes to earn interest or other gains on the premiums during the term, and they may not pass these gains to you. Finally, not all companies that offer ROP return the entire premium (e.g., John Hancock reportedly offers up to 75 percent back rather than the full premium amount), so it’s important to read the details carefully.

Is ROP Worth the Money?

A major advantage of an ROP term life insurance policy is getting your premiums back, essentially bringing you to net $0 for your coverage after the term ends (if you don’t count factors like opportunity cost). The main downside is that in the meantime, you’ll pay more than for a traditional term life insurance policy.

It’s tough to say exactly how much more expensive a return of premium policy will be. Some sources say you can expect ROP life insurance to cost roughly two to three times as much as a comparable term life insurance policy. Many more life insurance providers offer traditional term life policies than ROP policies, so it’s possible that comparing quotes could lead you to a term life policy that’s much more affordable than the ROP options available to you.

Granted, if you get your premium payments returned to you, you may not mind so much if the payment is higher during the policy term. But some families may find that the extra premium costs don’t fit their budget well. It’s also worth noting that even if you get the full face value of your premiums back, there are financial disadvantages.

First, inflation affects your money’s purchasing power over time. The premium money you pay now may not go as far 20 years in the future. ROP policies don’t pay you interest, so your return of premium may represent a loss in value when you factor in inflation. Additionally, there’s the potential opportunity cost if you’d invested that same money in a higher-performing investment (or an account offering interest) instead.

When Is a Return of Premium Policy Worth It?

In some cases, an ROP term life insurance policy is a great option to get coverage without losing premiums. Some signs that an ROP policy would work well for you include:

  • Your budget allows for higher premium payments

  • You don’t want to (or suspect you wouldn’t) invest the difference between a regular premium and a more expensive ROP premium on your own

  • Getting money back one way or another from your life insurance policy is a priority for you

Some signs ROP might not work best for you include:

  • Finding lower premium payments is a priority for you

  • You want to be able to compare prices at a wider range of insurance providers

  • You’re interested in a comprehensive financial strategy that includes investing or taking advantage of interest-yielding accounts

  • Your budget would make meeting ROP premium payments difficult

The promise of getting your life insurance premiums back can be a great feature, if you can afford to wait. An ROP life insurance policy has some distinct advantages worth exploring, too. 

If you’d rather have the flexibility to explore a wide range of insurance providers and build your financial plans to pursue investment opportunities and protect against inflation, a term life policy may leave you with more cash on hand to explore those other goals.

Fabric exists to help young families master their money. Our articles abide by strict editorial standards.

This material is designed to provide general information on the subjects covered. It is not, however, intended to provide specific financial advice or to serve as the basis for any decisions. Fabric Insurance Agency, LLC offers a mobile experience for people on-the-go who want an easy and fast way to purchase life insurance.


Subscribe to our newsletter


Written by

Jessica Sillers

Related Posts

Life Insurance

Is Life Insurance Tax Deductible?

Many people wonder whether life insurance is tax deductible. The answer is usually no, but there are some exceptions.

By Jenn Sinrich
Life Insurance

6 Types of Debt You Might Leave Behind When You Die (and How Life Insurance Can Help)

Most debts don’t disappear when you die. Here’s what happens to debts you leave unpaid and how to protect your family’s assets.

By Emily Smith
Life Insurance

Why Getting Life Insurance Is a Smart New Year’s Resolution

A new year is a fresh slate and a great time to build security into your family’s finances with an affordable life insurance policy.

By Emily Smith

Fabric Picks

Life Insurance

Life Insurance for Entrepreneurs: What You Need to Know

Entrepreneurs have a legacy to protect and other people’s financial needs to consider. That’s why life insurance is often a necessity.

By Jessica Sillers
Wills & Estate Planning

What Is a Trust Fund and How Does It Work?

Trust funds aren’t only for the very wealthy. Here's how they work, how to set one up and why you might want to consider having one.

By Cari Wira Dineen
Life Insurance

How to Talk to Your Spouse About Life Insurance

Talking about life insurance with your spouse can be a more upbeat conversation than you might expect. These ideas can simplify “the talk” with your partner.

By Jessica Sillers

About Fabric

iOS

/

Android

Download Fabric’s iOS mobile app through the Apple App Store
Download Fabric’s android mobile app through the Google Play app store
Subscribe to our newsletter

© 2022 Fabric Insurance Agency, LLC

Accidental Death Insurance policies (Form VL-ADH1 with state variations where applicable) and Term Life Insurance policies (Form ICC16-VLT, ICC19-VLT2, and CMP 0501 with state variations where applicable) are issued by Vantis Life Insurance Company (Vantis Life), Windsor, CT (all states except NY), and by The Penn Insurance and Annuity Company of New York (NY only). Coverage may not be available in all states. Issuance of coverage for Term Life Insurance is subject to underwriting review and approval. Please see a copy of the policy for the full terms, conditions and exclusions. Policy obligations are the sole responsibility of Vantis Life.

All sample pricing is based on a 25-year old F in Excellent health for the coverage amount shown. All samples are for a 10-year term policy, unless otherwise stated. Term Life Insurance policies (Form ICC16-VLT, ICC19-VLT2, and CMP 0501 with state variations where applicable) are issued by Vantis Life Insurance Company (Vantis Life), Windsor, CT. Coverage may not be available in all states. Issuance of coverage for Term Life Insurance is subject to underwriting review and approval. Please see a copy of the policy for the full terms, conditions and exclusions. Policy obligations are the sole responsibility of Vantis Life.

Fabric Insurance Agency, LLC (FIA) is an insurance agency licensed to sell life and accident insurance products. FIA will receive compensation from Vantis Life for such sales. The NAIC Company Code for Vantis Life is 68632. See the Terms of Use for additional information regarding FIA.

A.M. Best uses letter grades ranging from A++, the highest, to F, companies in liquidation. Vantis Life’s A+ (Superior) rating, which was reaffirmed in April 2020, ranks the second highest out of 16 rankings. An insurer’s financial strength rating represents an opinion by the issuing agency regarding the ability of an insurance company to meet its financial obligations to its policyholders and contract holders and not a statement of fact or recommendation to purchase, sell or hold any security, policy or contract. These ratings do not imply approval of our products and do not reflect any indication of their performance. For more information about a particular rating or rating agency, please visit the website of the relevant agency.

Plan like a parent. is a trademark of Fabric Technologies, Inc.