ROP Pays You Back!
Return of Premium (ROP) Gives Back Money
What if you could purchase an insurance policy, be lucky enough not to ever use it, and then get all of your money back at the end. This would seem like a win-win situation. You would be protected, but if you never needed to make a claim, you could get all of your premiums back in a nice check.
Well, this situation does exist in the real world sometimes. You can find return of premium term life insurance policies. You will still purchase your policy to last for a specified amount of time, like 20 or 30 years. Then, when the policy expires, if nobody has collected on the policy, a check comes back for the amount of all of the premiums paid.
An Example of ROP at Work
Consider the situation of a 40 year old man who wants to purchase a 20 year term policy with a death benefit of $500,000. Now understand that premiums vary by age, health, location, etc., but let us just say his premium is $50 a month. You can calculate his total premiums for twenty years by multiplying 50 * 12 * 20 = $12,000.
At the end of his term, he is now 60 years old. He has not passed away, so while he may be happy to be alive, he still has nothing left to do with that life insurance contract.
But let us say he choose to purchase a return of premium rider when he bought his life insurance. Now this additional benefit will cost a bit more, so for the sake of illustration, we will assume it adds ten dollars to his monthly premium. Now you can figure that he paid $14,400. In the end it cost him $2,400 more. than the basic policy without an ROP rider.
But now, instead of having a worthless piece of paper, this man will get back a check for $14,400! This seems like a good incentive to keep a policy in force. Not only do you have coverage for the period of your policy, you also get to look forward to collecting your premums if you survive it. If you do not survive the policy, the normal death benefit would be paid out ot your beneficiaries.
The Cost of Return of Premium Term Life Insurance
You understand that this example just used some figures for illustration. You can run some quick and free quotes to compare life insurance costs.
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