Here’s a quote and explanation of a 20 year term return of premium life insurance policy. I sent this to a client recently. This gentleman is 50 years old in good health, and doesn’t use tobacco.
“Hi Jim,
I’ve attached an analysis of the difference between buying a regular 20 year policy ($370K face value) and adding the return of premium option.
20 yr w/out ROP - $73.02/mth
20 yr w/ ROP - $155.03/mth
It ends up being a 5.74% annual rate of return. Or in other words, you’d be paying an extra $82.01 per month for the return of premium option, so if you were to go invest that elsewhere, it would have to earn 5.74% every year for 20 years to match what this ROP option does. The 5.74% is also income tax free, since the IRS sees it as a return of premium rather than an investment, so the 5.74 is net, not gross. It would probably be equivalent to an 8% gross rate of return. Not bad at all.”
Return of premium life insurance is a good option for people who can afford to pay their premiums on time, every time, because all it costs them is the time value of money. At the end of the term, if the insured hasn’t died, he gets all his money back. This is a type of policy that pays you back your premiums.
This copy of an email I sent to a prospective client doesn’t nearly cover all your bases. You should see my article here about Term Life Insurance with Return of Premium rider for more information.
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