The Return of Premium Life Insurance - Compare ROP Rates to Term Life Insurance Rates

The Return of Premium Life Insurance - Compare ROP Rates to Term Life Insurance Rates For a long time, I had a poor opinion of return of premium (ROP) life insurance: whereas the insurer refunds all the premiums at the end of the term of coverage (if the insured is still alive), it was my understanding that ROP rates were significantly higher than term life insurance rates. That means that a lot of the policyholder's money is tied up for a term of 5-30 years. Wouldn't he or she do better to buy the cheaper insurance and invest the difference somehow?

Compare ROP Life Insurance with Term Life Insurance

First, an ROP primer for the unfamiliar: Return of premium is a breed of term life insurance, a policy which cannot be perpetuated indefinitely but must terminate after a specified duration.

Pro: Compare return of premium insurance to ordinary term insurance structurally, and the only difference you see is that in the event that the insured survives the entire term of coverage, the owner of an ordinary policy gets nothing, whereas the owner of an ROP policy is refunded all of the money he spent on the policy.

Con: Compare return of premium insurance to ordinary term insurance cost-wise, and you find that return of premium insurance rates are notably higher than term insurance rates. How much higher? Although I was later to learn otherwise for myself, the first comparison I was cited was three times as much for ROP insurance, and when I heard that, I thought I was done with ROP.

Can ROP Life Insurance Rates Be Too High?

As I suggested in my opening remarks, yes. Tying up money for a term of 5-30 years is a significant drawback because I can't enjoy interest on that money. To give you an idea of the significance of that interest, reflect that interest on my premiums is the only source of money for the insurer to meet its ROP insurance expenses (death claims, administration, profit, etc.). (Since the insurer returns all the premiums-or worse, has to pay a death benefit-it needs to make a lot of money on investments while it has the premiums in its possession.)

Quotes To Compare Return of Premium Life Insurance Rates
Earlier, I alluded that the 300% comparison between ROP rates and term rates was not representative as an average. What kept me from discovering that fact for myself was drawback number two for ROP insurance: a paucity of instant quotes.

I've grown slothful in this information age; I admit it. Because online quoters make it so easy to compare term insurance rates, I have no trouble investigating that for myself. But return of premium insurance just isn't as popular. Not all life insurance carriers provide it. Consequently, online insurance quote engines cannot retrieve as many return of premium insurance quotes-or often, none at all.

Compare ROP Life Insurance Rates to Term Life Insurance Rates

This week, I encountered a number of essays which compare return of premium insurance to term insurance and all cite the difference in price between 40% and 60% greater for ROP. I wondered at the minimal difference. I ran a quote for myself. The online quoter I accessed returned but a single return of premium insurance quote, making it impossible to instantly compare return of premium insurance rates against each other, but I was able to instantly compare ROP insurance against term insurance: my quotes indicated that ROP was 65% more expensive than ordinary term insurance.

While 65% is still a significant price difference, I begin to wonder if it is not more than offset by the return of all my premiums. I must say that return of premium insurance is beginning to look more attractive.

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