Money back term life insurance is concept that has been created by the insurance company’s to refund the customer the term premiums at the end of the term. This has been a very hot product (ROP-Return of Premium). In essence, a customer is buying a term policy that costs about 30-50% more than your average regular term policy. The benefit for paying more is that the premium amount will be returned in full at the end of the term period.
Is this a good deal?
For example, a 1 million dollar, 30 year ROP term policy costs “Bob” $1000 a year in premium. At the end of the term if “Bob” has paid the full time and is still alive he will get a check back from ABC insurance company for $30,000. If he cancels early, typically he would get back only a portion of his premium: usually nothing for the first six years, 9 percent after 10 years and 35 percent after 20 years. At first look, it looks like it makes a lot of sense. If Bob, lives through the 30 years he gets back all the money he ever paid to the insurance company. On the other hand, if he paid a regular term policy for 30 years and was still alive he and his family would get nothing.
The insurance company knows that few people will ever pay for a policy for the full term and that they are going to win in most cases. On top of that, very rarely do they ever pay out a death claim. Bob, might be better off buying the less expensive term (for say $600 a year) and investing the difference ($400) in to an interest bearing account. This only would work if Bob made sure he remembered to truly save this amount every month and put it aside. Bob, may want to compare Universal life guaranteed to 100 as another option. It would cost more than the ROP and regular term, but it would guarantee a death benefit for his family. The chances he lives past 65 are very high.
ROP can be a great option to look at and it is a very popular life insurance product right now.