How Return-of-Premium Life Insurance Works

Return-of-premium life insurance will refund your premiums if you outlive the policy, but it comes at a high cost.
Dec 22, 2021

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An insurance policy generally isn’t something you can return for your money back, unlike a regrettable jacket or the wrong size shoes.

But among the different types of life insurance, one breaks out of that conventional wisdom: Return-of-premium life insurance promises to refund the money you paid if you don’t die during the policy term. It’s a compelling proposition for people who cringe at the thought of paying for insurance with the possibility of never getting a payout.

What is return-of-premium life insurance?

Return-of-premium life insurance — sometimes called ROP — refunds all of the premiums to the policyholder if he or she is still alive at the end of the policy period.

If the policyholder dies while the policy is still active, the death benefit will pay out to the life insurance beneficiaries just as a standard term life insurance policy would.

How does return-of-premium life insurance work?

Return-of-premium life insurance can be sold as a standalone policy or as a life insurance rider, which gets added to a standard term policy. When you buy return-of-premium coverage, you typically select a term length, such as 20 or 30 years. If you die during that time, your beneficiaries receive the death benefit. If you outlive the policy, you get back exactly what you paid in, with no interest. The money isn't taxable, as it’s simply a refund of the payments you made.

In contrast, with a regular term life insurance policy, if you’re still living when the policy expires, you get nothing back.

But everything has a price, right? You’ll pay a lot more for the money-back feature. According to data from Quotacy, a healthy 40-year-old male buying a $100,000 return-of-premium policy for a 20-year term could pay $746 a year, compared with $145 annually for the same policy without return of premium.

Return-of-premium life insurance pros and cons

While getting back the premium payments you made may seem appealing, there are drawbacks as well. Check out the pros and cons of a return-of-premium policy below.

Pros:

  • If you outlive your policy’s term, you get your premium payments back.

  • The returned money isn't taxed since it’s not income, but simply a return of the payments you made.

Cons:

  • It’s much more expensive than regular term life insurance.

  • You generally have to hold the policy for the entire term and make all payments to get your money back.

Other things to keep in mind about return-of-premium life insurance:

  • The return-of-premium feature is often added as a life insurance rider.

  • If you cancel your policy before the end of the term — or simply stop paying your premiums — you might not get any money back, depending on the policy.

  • You may be able to convert a return-of-premium policy to a permanent one without a life insurance medical exam.

Some insurers put their own twists on return-of-premium policies, so be sure you understand all the details of the coverage before you buy.

It’s also possible that you’ll receive less money back than you expected. For example, insurance companies might subtract one-time fees paid at the start of coverage.

Which companies offer return-of-premium life insurance?

Some of the biggest life insurance companies sell return-of-premium life insurance, and some smaller companies offer it as well. Here are a few examples.

Company

NerdWallet rating

Return-of-premium details

4.5

NerdWallet rating 

Offers return-of-premium insurance policies for 20- or 30-year terms, with coverage amounts starting at $100,000.

4.5

NerdWallet rating 

Offers return-of-premium as a rider for 20- or 30-year term life policies.

3.5

NerdWallet rating 

Offers return-of-premium as a rider for 15-, 20- or 30-year term life policies, with coverage amounts starting at $100,000 and going above $5 million.

Illinois Mutual

3.0

NerdWallet rating 

Offers return-of-premium policies in 20- or 30-year terms, or to age 65. Coverage amounts range from $50,000 to $500,000.

Is return-of-premium life insurance worth it?

A standard term life policy may be all you need. The money you don’t spend on the return-of-premium benefit can be used for something else or put into an interest-bearing savings account. If you don’t spend the money and let it grow, you will end up with more money than if you had simply gotten your premiums back due to the interest you earn.

If you want a guarantee that you’ll get back the money you paid in premiums, then be sure to make all your payments on time and don’t cancel your policy. Otherwise, the return-of-premium benefit may not pay out at the end of your policy.

Life insurance ratings methodology

NerdWallet’s life insurance ratings are based on consumer experience, complaint index scores from the National Association of Insurance Commissioners for individual life insurance, and weighted averages of financial strength ratings, which indicate a company’s ability to pay future claims. Within the consumer experience category, we consider ease of communication and website transparency, which looks at the depth of policy details available online. To calculate each insurer’s rating, we adjusted the scores to a curved 5-point scale.

These ratings are a guide, but we encourage you to shop around and compare several insurance quotes to find the best rate for you. NerdWallet does not receive compensation for any reviews. Read our editorial guidelines.

Insurer complaints methodology

NerdWallet examined complaints received by state insurance regulators and reported to the National Association of Insurance Commissioners in 2018-2020. To assess how insurers compare to one another, the NAIC calculates a complaint index each year for each subsidiary, measuring its share of total complaints relative to its size, or share of total premiums in the industry. To evaluate a company’s complaint history, NerdWallet calculated a similar index for each insurer, weighted by market shares of each subsidiary, over the three-year period. Ratios are determined separately for auto, home (including renters and condo) and life insurance.

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