What is Return of Premium in an insurance policy?

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Wiki User
2006-09-26 15:28:47

Return of Premium (ROP) is a relatively new feature available in

Term Life Insurance. The major drawback to Term Insurance is that

if you live beyond the stated term of the policy one of two things

happens. It either ends completely and all your premiums are gone

forever or it increases from the guaranteed premium to some new

amount which is generally thousands of dollars more. A recent 43

year old female I quoted had a $325 premium guaranteed for 20 years

but if she wanted to continue coverage in year 21 without being

medically underwritten, the cost was over $7000. To solve this

insurance companies added a Return of Premium rider. In the example

above, if she lived for twenty years she could get all the premiums

she paid back. There would be no interest or other enhancement,

just the exact amount paid. However, to continue the example above,

the premium amount with the ROP included would be $1103 for this

woman. It is important to know that this idea has been extended to

some other forms of coverage. One company that offers Defined

Benefit Health plans and supplemental plans has a rewards program

that does the same thing. If you keep the plan in place for five

years you can get 50% of your premiums back, wait until year 7 and

get 75% back or wait until year 10 and get 100% back. Many of my

clients like their supplemental plan that includes Ameritas Dental,

VSP vision, Rx plan, $10,000 AD&D, $7500 Accident plan and much

more for only $89/month for the whole family. That is cheaper than

most family dental plans.

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