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Life and Health


By October 1, 2008No Comments

Anyone who has ever shopped for Life insurance has faced the difficult task of choosing between a Term and Permanent policy. The choice isn’t as clear-cut as it might seem: Although Term insurance might be less costly in the short run, Permanent insurance features an attractive cash benefit. Not surprisingly, having to choose between these two types of coverages intimidates many prospective policyholders. In fact, some consumers are so baffled by this decision that they don’t purchase any coverage.

Fortunately, there is a new type of coverage for those consumers who just can’t decide what policy to buy. Return of Premium Term insurance (ROP) is a hybrid product that provides Term coverage with a twist: Policyholders get all of their paid premiums back if they are still alive at the end of the term.

To understand how ROP combines the best traits of Term and Permanent insurance, let’s compare them side-by-side. If you purchase Term insurance, you pay a set premium for a fixed term, usually between 10 and 30 years. Term rates are low, especially if you are young and healthy. However, your money only buys you a death benefit: If you are still alive at the end of the term, you receive nothing.

Permanent insurance, on the other hand, provides the same death benefit protection, but also allows you to build cash value within your policy. This balance is handy if you need money for emergencies, college tuition, etc. The downside is that you can expect to pay for this benefit through significantly higher premiums.

ROP gives the consumer the best of both worlds by providing the protection of insurance together with the savings component. With such a policy, if you die, your beneficiary receives a lump sum death benefit. But if you live through the term, the insurance company returns all of your premiums. While ROP is an appealing choice for all kinds of individuals, it is especially useful for purchasers who need to fill a temporary need, such as:

  • Insurance coverage for a key employee
  • Individuals who are planning to refinance their homes
  • Divorcees who are required to purchase insurance as part of their divorce decree

Although ROP has many advantages, consumers should keep in mind that the cost of this coverage is somewhat higher than a typical Term policy. And if you need to extend your policy past the initial term period, expect to pay significantly higher rates. The best strategy is to examine all options, carefully weigh the costs and benefits of each, and pick the one that can do the most for you.