A return of premium (ROP) rider is a type of life insurance rider, or an optional feature you can add to a new or existing life insurance policy. With return of premium, you get reimbursed for some or all the life insurance payments you’ve made over the years if your policy expires while you’re still alive. For example, if you paid $50 a month for 10-year term insurance with return of premium, you could receive $6,000 back – tax-free.
A return of premium rider can be a win-win in the right circumstances: financial security if your family needs it, and your insurance investment returned if you don’t. Regardless of how long you live, you can be confident that your policy will provide a cash cushion for you or your family. That said, adding a return of premium insurance rider will raise your life insurance rates and means you can’t invest those extra dollars elsewhere. Like all life insurance purchases, it’s important to consider your options carefully to find the right fit.
If saving money isn’t your strong suit, a return of premium insurance rider can help you set aside a little extra each month without even thinking about it. Instead of spending those dollars or putting them in higher-risk investments, like stocks, you’ll get a guaranteed amount back if you outlive the policy.
It depends. While adding a return of premium rider to your policy will increase your premiums, it can be a valuable way to set aside money for the future. This option is generally best for people who have a little extra to spend on coverage and want a guaranteed return on their life insurance investment. If you’re on a budget, a basic term life insurance policy might be a better fit. Also, remember that unlike some other investments, your term life premiums won’t earn interest during the life of your policy. Also, if you lapse your coverage before the return of premium rider expires, you may get less than the maximum benefit.
Typically no, and here’s why: At the end of your policy term, you receive back all the payments you put in from the insurance company, including what you spent on the rider itself. Since the return of your premium payments is considered a refund, not a payment, it’s not taxable.
If you want to protect your family financially and save for the future, there are a few different options available. One is buying a basic term life policy and investing or saving your money, instead of purchasing a return of premium rider. This can potentially help you earn more money over time, since your money can earn interest, but it may come with more risk.
You can also buy a whole life policy that comes with a cash value component, which you can withdraw or use as collateral for a loan. This option is usually more expensive than term insurance, however, whether or not you add a return of premium insurance rider.
Ultimately, the best choice depends on your budget, goals, and tolerance for risk. Talk to an agent about your needs.
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