Return of Premium
If you’d like to have term life insurance in place to provide for beneficiaries yet you’re confident you’ll outlive the policy, you now have many options for “return of premium” (ROP) term life insurance. Under this type of policy, if no death benefit has been paid by the end of your insurance term, you receive all your premiums back.
With a traditional term life insurance policy, you buy a coverage term, such as 15, 20 or 30 years, and pay a fixed annual price. If you don’t die within that term, your contract ends and you receive nothing, having paid for the “risk” that you might have died.
An ROP term life policy gives you 100 percent of your premium money back (it’s tax-free) at the end of your term if no death benefit has been paid. Or put another way, “You can rent your insurance or you can buy it,” says Alan Lurty, Senior Vice President at ING.
How much will it cost me?
An ROP term life policy will cost more than a comparable traditional term life policy, and there is a significant range among insurers for that surcharge, plus significant ranges depending on your age and the length of term you want.
It will really pay to shop around for a policy like this, but on the low end you can expect to pay 50 percent more than comparable traditional term life insurance. So, for example, if your annual base premium for traditional term insurance would be $3,000, adding an ROP option could bring it up to $4,500 annually. On the high end, you might be looking at paying 150 percent more over the base premium, so that $3,000 premium would become $7,500.
Shoppers should also note that with ROP term insurance policies, generally the longer the term the less you’ll pay out overall in premiums. So a 30-year ROP term policy could actually end up costing less total money, at the end of the term, than a 15-year ROP policy. How does that happen? Because the 30-year term gives the insurer more time to make its money back by investing your premiums. So make sure you price out different term lengths when getting insurance quotes.
Generally, you will not be returned premiums for extra riders you may add to the ROP term policy.
Who considers it?
The likely customer for ROP term life insurance is a person who has the confidence he’ll outlive his policy. Or it could be the person who can’t get over the feeling that term life is a “waste of money” if the death benefit isn’t paid out. ROP term life insurance provides a way to hedge your bets no matter what happens.
ROP term life insurance provides a way to hedge your bets no matter what happens.
What if I surrender my ROP policy early?
It’s not wise to buy any life insurance policy if you don’t intend to keep up on payments. However, if you do surrender an ROP term life policy early, you will get some of your premiums back based on a sliding scale if you’ve held it for a few years. Check your policy details about that sliding scale before you buy.
Many companies offer no premium return if you surrender your policy within the first few years. Your policy will spell out the rules for surrendering it, such as when partial premium returns would start and the sliding scale for those returns.
For example, just because you’re halfway through your policy term doesn’t mean you’ll get half your premiums back if you surrender it. The longer you keep it, the higher percentage of premiums you’ll get back, up to 100 percent at the very end of your term. (If you die during your term, your beneficiaries receive the death benefit without any premium return.)
Can I get it for less?
Companies such as ING and Genworth offer two flavors of ROP term life policies, usually called basic and enhanced (more expensive). Under the “basic” contract, you pay less in premiums than an enhanced policy because you get back less if you surrender it early.
For example, if you bought ING’s 15-year term life “basic” ROP policy and surrendered it in year 10, you would receive 30% of your premiums back. If you held ING’s “enhanced” 15-year policy for 10 years you’d receive 60 percent back.
For either basic or enhanced policies you always receive 100 percent of your premiums back if you get to the end of your term.
Invest the difference?
Maybe now you’re thinking that another option would be to take the premium difference between traditional term life and ROP term life and invest the difference. Would you come out ahead at the end? It depends mainly on your term length. Lurty of ING offers this example: Say you’re looking at traditional 30-year term for $1,500 or ROP 30-year term for $2,000 annually. That’s $500 a year you could otherwise put into investments. To equal the money you’d get back from your ROP policy at the end of 30 years, you would need to see an investment return on the premium difference of about 7 to 8 percent. How well has your portfolio been doing? Lurty says that with ROP term policies you don’t have to worry about “investing the difference” because it’s being done for you.
Note that the example is for a 30-year term. With shorter-term ROP policies, like 15 or 20 years, you might indeed yield more at the end of the term by investing the difference. And you would need the self-discipline to actually invest those extra dollars each year. Of course, should you die within the term only the death benefit is paid out. Thus, don’t view this as an investment product.
Expect to see more return-of-premium insurance policies as it catches on.
Life
Health Savings Accounts
You can use this account to pay for your qualified health expenses, including expenses that the plan ordinarily doesn’t cover, such as eyeglasses and hearing aids.
Expenses paid out of the HSA that are eligible expenses under your high-deductible health plan will count toward the plan’s deductible.
