Return of Premium

Return of Premium Rider

What is a return of premium? Is it a good deal?

On the most basic level it's somewhat of a gimmick. But some people like gimmicks and this one can be attractive in the right circumstances.

Let's say you pay $1,000 a year for this term policy and it's for 20 years. After 20 years, at 1,000 a year, you would have paid in $20,000 A return to premium writer says, we'll give you your $20,000 back at the end of the 20 years.

Obviously, the insurance company is charging extra for this (potentially) valuable contractual right. Is it a good deal? Who gets to invest that money in excess of the cost of the actual insurance over those 20 years?

The carrier does, of course. If you let the policy lapse before the end of the term period where you can get your money back, that not be a good deal at all. But it only costs a little bit more per year to have this rider added to your policy.

My answer is, you have to do the math. Is it a mathematically a good deal depends on does the $1,000 a year buy you $10,000 of insurance, or does it buy you a million dollars of insurance?

What I am saying is, don't let the premium back cloud your judgment on what you're purchasing in the first place.

ALSO: There are advanced life insurance designs where the ROP allows us to increase the death benefit year over year in was that we could not otherwise. These designs where a return to premium rider really makes sense and allows us to do some things with the design of the policy where the math really does work.