One of the biggest obstacles to purchasing term life insurance is its "use or lose" nature. Consumers may be turned off by the idea of paying premiums for decades and not having anything to show for it because they're still living when term ends.
Of course, if you die during the term, the insurance company has to cough up the full death benefit on the policy. If the policyholder lives to the end of the term, he or she loses the policy and forfeits the premiums paid. Coincidentally, this is one of the reasons term life insurance is so cheap compared to it's permanent life cousins (whole and universal life) which are designed to remain in force no matter how long the insured lives.
Enter Return of Premium life insurance. This innovation is an attempt by a few insurance companies to solve the case of buyers remorse that sometimes accompanies the purchase of a term life policy. Return of Premium, or ROP policies as they are sometimes called, are term life insurance pure and simple. You pick the term length (20 or 30 years being the most common). You pay the premiums until the end of the term at which point the insurance company refunds your premiums. Of course, if you die during the term, your family receives the full death benefit.
If it seems too good to be true, there are a few things to consider. Assuming you live to the end of the term, your premiums are returned without interest. In addition, Return of Premium term life insurance is usually more expensive than regular term life insurance. Finally, if you cancel or surrender the policy early, you may only receive a partial refund of your premiums.
Bottom Line: If you've put off buying life insurance because you're afraid of throwing money down the drain, you might want to investigate Return of Premium life insurance. Furthermore, Return of Premium life can provide found money that you can use down the road to pay off your mortgage early or help with your children's student loans. And, if you don't live to the end of the term, your family will still be glad you bought it.
About the author: David Iobst is a Certified Financial Planner™ located in Bear, DE. He is currently accepting new clients in DE, MD, and PA. You may contact him via his web site http://www.davidiobst.com. Securities offered through LifeMark Securities Corp. Member FINRA/SIPC. 400 West Metro Financial Center Rochester, NY 14623. 800.291.7570