Imagine getting a money-back guarantee on your Term Life Insurance: Your family receives a lump sum of money if you die, but if you live the company returns all of your premiums!
Believe it or not, such a product now exists and is just one of the innovative solutions coming your way from some of the best insurers in the business. It’s called Return of Premium (ROP) and its aimed right at one of the greatest consumer objections to pure life insurance: "I’m probably not going to die, and my money will have been wasted."
Before this innovation, life insurance was available in two forms: Term Insurance and Cash Value Insurance.
Term Insurance is cheap and easy to understand (which explains its proliferation on the Internet today). With Level Term Insurance, you know exactly what the premiums will be for a fixed number of years. It’s very affordable life insurance protection, but you get nothing if you outlive the policy.
Cash Value Insurance, on the other hand, includes pure insurance coverage – guaranteed renewable for your whole life – along with an investment component to build cash value. Building cash value, however, means paying higher premiums. While an unused term policy can feel like a waste, a cash value policy can often cost two or three times as much for the same coverage.
Return of Premium (ROP) Term is an elegant and effective new solution that splits the problem up the middle. It starts out like Term Life Insurance with one extra promise from the insurer: If you pay your premiums and you live, we’ll give you your money back. On a typical 20 year Level Term Life Insurance policy the ROP feature could cost about 30% more, but that extra premium will effectively earn you a 6-7% return over the 20 years -– just enough to earn you back everything you’ve paid in. What’s in it for the carrier? LOYALTY. Carriers spend a lot of money to get your policy, and only start making a profit if you stick around more than five years or so. ROP guarantees that lots of customers stay for the full 20. And, for those that don’t, the carrier made an extra 30% on those guys -– and used some of it to pay you a solid return on your money. So if you know that you are going to be insured for the long haul, then think about tossing in a few extra dollars and getting it all back in the end.