Should You Purchase (ROP) Return on Premium Term Life Insurance?

by Jeff Rose

Ecently, a younger business owner client of mine was inquiring about purchasing a term life insurance policy. Like me, he recently just had a child and was concerned about providing financial security to his family in the event of his unexpected passing.  A term life policy makes total sense for his situation, but what we he also wanted gave it a twist.  In addition to  30 year term life policy, he wanted to add what’s called a return of premium rider .  For those that are not familiar, the return of premium rider allows the policy holder to get a full refund of all the premiums paid at the end of the contract.  At first, it sounds like a pretty good deal.  The most common complaint that consumers have with life insurance is that if you don’t die, all the money goes directly to the insurance company.  If this is the case, then purchasing the return of premium rider seems totally worth it.

At first glance, the return of premium rider seems like a no-brainer.  One piece of information that you need to know is that the rider comes with a price.  The ROP rider on average will run 20%-40% higher than purchase a policy without it.  In addition, you have to keep the policy for the entire contract period to get a full refund of your premium.  So then the question remains, does it make sense to pay more for the rider since you know you’re getting all your premiums back?  Let’s take a closer look….

To illustrate the cost difference between purchasing regular term insurance vs. one with the ROP ride, here are some quotes that I ran. In our scenario, I am using a 30 year old male, assuming he is in excellent health.   We are going to get a quote on a 30 year term life policy with a $1,000,000 face value.   Without the ROP rider, the annual premium will cost approximately, $720 per year for a total of $21,6000 premiums paid

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