How much does return of premium insurance cost?
ROP riders typically bump the cost of standard term life insurance by 30% or more.
Return of premium life insurance pros
ROP life insurance has significant advantages:
- Guaranteed benefits: The insurer either pays beneficiaries death benefits or refunds you 100% of premiums.
- Savings: The returned premiums serve as a type of long-term savings.
- Tax benefits: Refunded premiums are tax free.
READ MORE: What Is Whole Life Insurance?
Return of premium life insurance cons
There are also some significant disadvantages:
- Price: Return of premium life insurance is pricier than standard term life policies.
- Limited choice: Not all of the best term life insurance companies offer a return of premium rider, so consumers may have fewer options.
- Opportunity cost: Money spent on a return of premium rider may be better invested elsewhere. Other investments can produce better rates of return.
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What companies offer return of premium life insurance?
Many life insurance companies offer return of premium life insurance, but some are better than others. Here are some of the top choices.
Best for high death benefits: AAA Life Insurance
AAA provides return of premium coverage that allows policyholders to get back 100% of premiums. Death benefits range from $50,000 to $5 million, ideal for those who want substantial coverage. Policyholders can choose between 15-, 20-, and 30-year coverage terms.
Best for in-person support: State Farm
State Farm offers return of premium life insurance for policies starting at $100,000 in coverage. Policies run for 20- or 30-year terms. State Farm has one of the largest agent networks of any insurer, and it's ideal for policyholders who want help buying a ROP policy in person.
Best for customizable coverage: Prudential
Prudential lets you customize life insurance coverage quite a bit. You can even convert term life policies to permanent ones. The company's PruLife Return of Premium Term is available with 15-, 20-, or 30-year policies.
READ MORE: How to Buy Life Insurance: Step-by-Step Guide
Should you buy return of premium insurance?
It depends on your desired death benefits and how comfortable you are paying more upfront for a money-back guarantee..
Struggle to save a little bit at a time? You could take out an ROP policy and think of it as long-term savings. If you're alive to collect, you'll get it all back at the end of your term. You can't withdraw it early -- there's nothing to withdraw -- so there's zero temptation to spend.
Generally speaking, you should not buy a return of premium insurance policy to build short-term savings or to earn returns on investment. Your deposits won't earn interest like they would in a high-yield savings account. But adding money to savings takes discipline.
Most people find a return of premium rider too expensive to justify. The extra paid in premiums could be better invested elsewhere. To secure your finances and earn passive income, consider building an emergency fund. That way, you'll earn interest on your savings.
READ MORE: What is an Emergency Fund, and Why Do You Need One?