Return of premium term life insurance is a type of term life insurance that solves the inevitable dilemma that a term life policy presents. In traditional term life policies, the amount of premiums is non refundable and once the term expires, the policyholder is left with nothing. To mitigate the loss due to such a structure a Return of premium policy( ROP) came into existence.

• In such policies, the premium that is paid by the policyholder is given back to him or her if the person outlives the term. Some Return of Premium policies also give back the complete amount that is paid by the policyholder and is tax free in most of the countries.
• The downside of such policies is that they are a little costlier compared to traditional term insurance policies. The cost of the policy differs from one company to another; however the policy is forty to fifty percent dearer compared to traditional term policies.
• If the policy is surrendered earlier (before “maturity”) then a part of the premiums that you paid may be given back. However many companies do not give anything back unless you have kept the policy in force for at least a few years.
• There are two basic types of policies; the basic one and the enhanced policy which is more expensive. The basic policy does not give any returns if you surrender it earlier; however the advanced policy gives you some amount back if you decide to surrender the policy.
• One disadvantage of such policies is inflation which reduces the value of money and may make the investment financially redundant after 30 years. The amount of premiums is so high for short term return of premium policies that they subsequently become unfeasible. Some experts agree that instead of such policies it is better to invest the money somewhere else and earn an interest on it; which is what the insurance companies do.
• On the other hand, anyone considering a return of premium life insurance might be wise to purchase a standard term policy instead, and invest the difference for his or herself. This completely depends on the term of the policy since a policy of 10-15 years can be much less productive if used in this manner. However, a policy of 30 years can be used for such purposes because the difference (in premiums) is comparatively less.
• Return of premium policies are good for those who are young and have better chances of survival when the term expires. Senior citizens and people who have a higher risk of mortality probably will not benefit from such policies. Another factor that influences the decision of opting for such policies is the projected or expected income of the policyholder and the ability to pay the premiums over a long period of time.
• People in the high income group bracket can afford to pay the high premiums that such policies demand. However those who do not have a steady income can choose other types of policies that have lower premiums such as group term insurance. The most important factors in such policies are firstly the survival of the policyholder for the entire term and secondly the length of the term itself. If both these criteria are fulfilled then this type of policy can be a better investment than other term insurance policies.

If you have any other points to share about such policies please feel free to leave a comment.