What Is Return-of-Premium Life Insurance and How Does It Work?

An insurance policy generally isn’t something you can return for your money back. But there’s one exception: return-of-premium (ROP) life insurance.

This type of coverage reimburses you for the money you paid in premiums if you don’t die during the term. Some insurers offer it as a stand-alone policy, though it’s commonly sold as a rider that can be added on to a life insurance policy. It can cost significantly more than a traditional life insurance policy.

» MORE: Best life insurance companies

Return-of-premium is a feature or rider added to an insurance policy that gives policyholders a refund of the premiums paid if they outlive their term.

When you buy a stand-alone ROP life insurance policy, you’ll choose a term length, such as 20 or 30 years. If you die during that time, your life insurance beneficiaries receive the death benefit. But if you don’t, you’ll get a refund of the premiums you paid, without interest.

The money-back feature comes with a higher price tag. You can expect to pay three to five times as much for a return-of-premium policy compared with a standard term life insurance policy without ROP benefits.

Your insurer might also subtract the cost of administrative fees and similar charges. The money you get back isn't taxable, as it’s simply a refund of the payments you made.

To compare, with regular term life insurance, you won’t receive any money if you’re still alive when the policy expires. However, you’d pay much less in premiums for the same amount of coverage.

» MORE: Average life insurance rates

For most people, return-of-premium life insurance isn’t worth the extra cost. A standard term life insurance policy is sufficient and more affordable. Instead, put the money you don’t spend on a return-of-premium policy aside into a high-interest savings account, or invest it.

If you’re not comfortable with the idea of paying into a life insurance policy that may expire, consider the lifelong coverage offered by permanent life insurance policies like whole life.

» MORE: Best whole life insurance

If you do buy ROP insurance, you’ll need to choose whether you want a stand-alone policy or to add this feature to an existing life insurance policy.

This list focuses on return-of-premium policies that are sold separately. To narrow down the list, we looked at death benefit amounts, term lengths and state availability, as well as insurers’ financial strength and reputation among customers. All of the companies below scored at least 4.6 out of 5 stars.

Best for discounts: State Farm

Open to applicants from 18 to 60 years old, State Farm’s return-of-premium life insurance policy offers coverage starting at $100,000 and capped at $250,000. Depending on your age, you can buy a policy lasting 20 or 30 years. If you’d like to convert your policy to permanent life insurance, you can do so up to age 75.

State Farm offers a multi-line discount for anyone who has auto insurance with the company and purchases a return-of-premium life insurance policy.

Best for transparency: The Cincinnati Life Insurance Company

Cincinnati Life’s Termsetter ROP policies start at $25,000 in coverage and can last 20, 25 or 30 years. The insurer doesn’t list a maximum coverage level. Instead, the amount of coverage you can buy depends on your age and your rating category. Cincinnati Life also offers a transparent application process with an underwriting professional on hand to answer questions.

With this insurer, some ROP applicants are eligible for accelerated underwriting, which skips the medical exam. The insurer is also lenient toward nonsmoking tobacco users when it comes to assigning a rating category.

Best user-friendly policy: Illinois Mutual

Illinois Mutual’s return-of-premium policy is straightforward. If you’re 18 to 60 years old, you can buy up to $500,000 in coverage, and add an accelerated death benefit rider to your policy. However, the policy isn’t available in Alaska, Hawaii, New York or the District of Columbia.

Although you can’t convert this term life policy to permanent life insurance, Illinois Mutual does allow you to renew a return-of-premium term policy annually up to age 95.

These companies allow you to add a return-of-premium rider to specific policies. You can expect to pay higher premiums if you opt in to this coverage.