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The Ultimate Analysis of Return of Premium Life Insurance

Return of premium life insurance sounds like a win-win. You either protect your family if something awful happens, or you get your money back. 

Like with most financial decisions, you only uncover the truth of the matter when you dig deeper.

Quick aside: you will find many articles either promoting return of premium or blasting it. Most life insurance agents also have strong opinions on this option. Our goal here is to analyze several likely scenarios in which a policy has a return of premium rider. Then, we compare the situation with the rider versus without so you can make an informed decision based on your preferences. 

Quick Summary

Life insurance policies with return of premium give you the ability to get all or part of your premiums back if you don’t use your policy. Companies are changing how they handle this, shifting toward treating this add-on like an extended return policy. Few companies still offer this feature on term policies. 

What is Return of Premium?

Return of premium returns all or part of the premiums paid into the policy if you either outlive your term or at certain policy anniversaries if you surrender the contract. 

return of premium life insurance save money
It sounds like a good idea, but return of premium isn’t right for everyone. You need to decide how best to use that money. Whether it is on return of premium life insurance or other investments.

Insurance companies initially developed this optional life insurance rider to make people less hesitant about insurance. It was a way to hedge your bets. If you pass away, your family will be okay. If you live beyond your life insurance term, you get your money back. 

Each year, fewer life insurance companies offer return of premium on their term policies. You mostly see it on permanent policies. In this case, on specific policy anniversary dates, you can use the return of premium rider to surrender your policy and get some of your money back – like an extended return policy. 

Before you start looking at policies with return of premium riders, make sure you know whether term or permanent life insurance fits your situation better.

What’s the catch?

Return of premium riders are either free or expensive. It’s a weird dichotomy. 

On term policies, they often double your premiums. You pay handsomely for the privilege of having part (if not all) of your premiums returned to you at the end of your term. 

On the one hand, you aren’t “wasting” money on something you may not use. The tradeoff comes with opportunity cost. If you had instead invested the money you would have spent on return of premium, would you be financially better off?

On permanent policies, you’ll need to keep the policy in force for at least 15 years. Then on specific policy anniversaries, you can surrender the policy. In this case, you would only do this if you no longer have any need for life insurance. Because returning the policy, then buying a new one when you’re 20 years older doesn’t make any sense. 

Anything else I should know?

Returned premiums are non-taxable. Principal amounts don’t get taxed, and that’s what you’re getting back. 

Second, if you let your policy lapse (or cancel it), you won’t get your premiums back. You have to hold your policy until either the end of your term or the qualifying anniversary date

Our 3 Favorite ROP Policies + Rates

Fewer and fewer companies offer ROP policies nowadays. The following three currently provide some of the best return of premium options at reasonable rates. 

Top return of premium policy comparison

Mutual of Omaha – Term Life Express

This policy is one of the few remaining term life insurance options where you can get your premiums back. Typically, you have several term options and various ages at which you can get this policy—however, the return of premium version limits who can get the Term Life Express ROP.

Issue ages range between 18 and 50. Without return of premium, anyone between 18 and 70 can apply. Available benefits can be anywhere from $25,000 to $300,000. 

But here’s the big catch. The only term length available with the ROP option is 30 years. Go figure. 

But here’s the good news. Term Life Express is one of Mutual of Omaha’s simplified issue policies. That means you can skip the medical exam. When you skip the medical exam, getting a policy only takes two or three weeks instead of eight. 

Mutual of Omaha’s Return of Premium Term Policy

Mutual of Omaha refunds all of the premiums you’ve paid over the 30 years at the end of the term contract. 

Pretty simple. 

If you surrender the policy before the end of the 30-year term, they will refund part of the premiums on a sliding scale – depending on how long you’ve held the insurance. 

Mutual of Omaha Term Life Express 30 Rates

These monthly rates would be for someone in good health who doesn’t smoke. Your rates may vary based on your age, health, benefit amount, state, and other riders.

Men$50,000$100,000$250,000$300,000
Age 25$54$43$98$117
Age 35$31$57$133$158
Age 45$60$113$275$328
Age 50$87$169$414$495
Women$50,000$100,000$250,000$300,000
Age 25$22$38$85$311
35$30$55$129$154
45$53$100$242$290
50$83$160$391$468

Term Life Express 30 Riders

You can add several riders to your term policy, some only with the ROP option. Other riders you can only add to the non-ROP version. 

  • Accelerated Death Benefit Rider – Included in the policy, this allows the insured to get 92% of their death benefit upon diagnosis of a terminal illness with less than 24 months to live
  • Residential Damage Waiver of Premium – if the insured’s primary residence sustains more than $25,000 in property damage, premiums will be waived for six months
  • Common Carrier Death Benefit – doubles the death benefit (up to $250,000) if the insured dies of an accident as a fare-paying passenger on transport
  • Accidental Death Benefit – Option for additional death benefits if the insured passes as a result of an accident
  • Dependent Children’s Rider – allows for additional term policies for dependent children
  • Disability Waiver of Premium – waives policy premiums if a doctor diagnoses the insured with a disability that prevents them from working

The riders you cannot add to the return of premium version of this policy are the:

  • Living Benefits Rider – Advances the death benefit for terminal, chronic, and critical illnesses as defined by Mutual of Omaha
  • Disability Income Rider – pays a portion of the insured’s monthly income after diagnosis of disability

American National – Signature GUL

American National offers relatively low rates for applicants between 30 and 50. It offers one of the stronger policies with better definitions at reasonable rates. 

The guaranteed universal life policy blends the perks of permanent policies (like whole life) with the affordability of term insurance

Anyone ages 18 to 80 can apply. The exception is tobacco smokers, where the applicant age limit drops to 75. 

Death benefits begin at $25,000. They can never drop below that point. For example, GUL allows you to decrease your death benefits after taking out the policy. In this case, you cannot go any lower than that. There is no limit on the high end, so long as you financially qualify. 

The policy matures at an age of your choice between 95 and 121. 

American National offers an interesting no-lapse guarantee. For the first 10 years, the policy cannot lapse so long as you pay premiums on time. After the first 10 years, a reference account called (logically) the “no lapse guarantee account” becomes a benchmark for policy lapse prevention. As long as the number in the no-lapse guarantee account remains positive, your policy will be fine. 

There is a cash value that slowly builds at a guaranteed interest of 2.5%. If you decide to borrow against your life insurance policy, American National charges a 4.5% interest rate. 

American National’s Return of Premium Mechanics

American National’s guaranteed universal life policy has an optional rider called the Guaranteed Cash Out Rider. It allows you to cash out the policy on the 15th, 20th, and 25th policy anniversary. You don’t have the whole year to do this, just 60 days after the anniversary. 

If you don’t know when your life insurance policy anniversary is, call your agent. 

This rider requires you to surrender the policy. Once you use the option, you no longer have life insurance

American National offers this rider because needs change over time. Most people are living different lives 15 to 25 years down the road. There may no longer be a need for life insurance. This way, you can get some of your money back and not take the full loss of the policy. 

The return isn’t the full amount of premiums in several cases. The graphic below explains it best. 

American National Signature GUL return of premium policy returns

The premiums refunded based on these percentages can be further reduced if you have taken loans or withdrawals from the policy. 

There is good news. This rider doesn’t cost you a thing. It’s 100% free. 

The final detail to note is that rider options change for substandard health classes. How it changes will depend on your health, so it’s best to ask your agent for details unique to your situation. 

American National GUL Rates

The American National monthly rates below reflect health people who don’t use nicotine products. You rates may vary.

Men$100,000$250,000$500,000$1,000,000
Age 35$81$112$211$394
Age 45$123$146$276$528
Age 55$209$233$443$685
Age 65$374$406$777$1,522
Women$100,000$250,000$500,000$1,000,000
Age 35$68$91$172$323
Age 45$103$109$208$393
Age 55$163$183$363$698
Age 65$285$316$604$1,186

American National Riders

Below, you’ll find a quick once over on the riders you can add to American National’s GUL. 

  • Accelerated Benefit Rider (included) – allows the insured to receive some of the benefits early upon diagnosis of a terminal, chronic, or critical illness. 
  • Children’s Term Rider – term insurance of $1,000 to $25,000 for dependent children under the age of 25. 
  • Disability Waiver of Stipulated Premium – credits some premium to the policy in the event of a qualifying disability. This doesn’t necessarily prevent the policy from lapsing. 

AIG Secure Lifetime GUL 3

AIG offers more flexibility in its Secure Lifetime GUL 3 policy than most other guaranteed universal life policies you’ll find. Most of the time, more flexibility works well to tailor to your needs as they change over time. However, it does mean more upfront effort to understand the details thoroughly. 

You have two ways to pay the guaranteed premium options. First, pay the guaranteed premiums like normal. Second, you can pay extra to pre-fund the coverage guarantee. Think of it like paying extra toward your mortgage each month to get your house paid off faster. The advantage comes when you stop paying premiums after your policy hits a “fully funded” status

AIG guarantees your death benefit amount, regardless of the current cash value in your account. That’s always a bonus. 

Further down the customization option list, most policies allow you to decrease the death benefit after signing the contract. AIG enables you to increase the death benefit as well, subject to financial qualifications

AIG also guarantees the cash value growth of at least 2% interest. Loan rates vary based on current rates at the time. 

Anyone age 18 to 80 can apply. There is no application age penalty for smoking tobacco. 

AIG’s Return of Premium Rider

Like, American National, AIG includes this rider free with their Secure Lifetime GUL 3 policy. It refunds some of the premiums if you choose to surrender the policy on the 15th or 20th anniversary. 

At year 15, you receive 50% of premiums paid and 100% if you wait until year 20. However, AIG limits the total amount refunded to 40% of the face amount. Not just any face amount, the lowest face amount. For example, if you reduced your death benefit in year 10, that would limit your refund to 40% of the new, lower face amount. 

AIG offers a paid rider that enhances their built-in return of premium feature, aptly called the Enhanced Surrender Value Rider. It allows you to surrender your policy on the anniversary of year 20 for 50% or year 25 for 100%. This is still capped at 40% of the lowest face amount in the policy. 

AIG Secure Lifetime GUL 3 Rates

Men$100,000$250,000$500,000$1,000,000
Age 35$90$179$334$621
Age 45$101$205$360$722
Age 55$138$294$594$1,081
Age 65$232$529$1,000$1,954
Women$100,000$250,000$500,000$1,000,000
Age 35$78$151$280$603
Age 45$88$164$312$605
Age 55$117$243$469$875
Age 65$185$414$805$1,567

AIG Secure Lifetime GUL 3 Rider Options

The following riders allow you to customize your policy to best suit your family. 

  • Accidental Death Benefit – pays extra death benefits if the insured passes resulting from an accident or as a fare-paying passenger on public transport. 
  • Children’s Insurance Benefit – Term insurance for dependent children up to age 25
  • Enhanced Surrender Value – lets you extend the ROP to year 25. 
  • Accelerated Access Solution – pays some of the face amount early for qualifying chronic illnesses
  • Lifestyle Income Solution – lets you withdraw money from your life insurance policy to act as income at a designated age. Check into the taxes on this before adding it. 
  • Terminal Illness – adds the option to pay some benefits early if a doctor diagnoses the insured with a terminal illness and has less than 24 months expected lifespan. 
  • Waiver of Monthly Deduction – if the insured meets AIG’s definition of disability for at least 6 months, AIG will waive premiums until they’re recovered

3 Questions to Determine Whether or Not ROP is Good for You

If the potential for paying higher premiums didn’t scare you, it would be wise to consider these three questions before deciding on purchasing return of premium life insurance

return of premium life insurance how does it work
Think over these questions and talk with your financial planner. How can you spend as little on life insurance as possible?

Can I afford it?

If you’re eating instant ramen for most meals, probably not. (Unless you love instant ramen.) If you looked at the potential premiums and mentally tallied the things you would have to give up, it still probably isn’t the right choice

Life insurance creates an important financial pillar for your life, but we don’t want you to deprive yourself of other important things to get it.

How else would I use the money going toward the ROP portion?

If you have the disposable income to easily cover the difference between an ROP policy and one without that feature, think of what else you could do. It’s better to pursue financially responsible things like retirement planning and other investments that many people don’t get around to until their 40s. 

For example, how much do you contribute to your retirement accounts each month? Are you pretty good about it? Alternatively, is retirement planning sitting somewhere near the bottom of your to-do list, and you’ll “get around to it at some point”? What about other investments, saving for the down payment on a house, or your child’s college fund? 

If you have your financial discipline down and still have the disposable income, that’s awesome. Then it’s time to consider the cost-benefits of return of premium life insurance. 

What course of action would best negate the cost of your life insurance?

Instead of increasing your premiums through ROP, what if you invested the difference? Use the money you would have spent on return of premium in investments in hopes of entirely negating the cost of the insurance altogether. 

Return of premium offers you some to all of your money back if you don’t use it. But there isn’t any interest on what essentially was your loan to the insurance company. 

Most people think they’re exceptionally good at making the best financial decision. Then life happens, and it ends up at the bottom of the to-do list. That’s normal. 

If you’re honest with yourself, and you won’t invest the difference between the ROP and non-ROP policy, you may be better off recouping the cost of any unused insurance

Frequently Asked Questions

What is the catch with return of premium life insurance?

Most people are surprised to see how much adding a return of premium rider increases their premiums. You should also look at the contract details to see how much money you will get back. 

Is return of premium life insurance worth it?

It depends on the details in the policy and how well you manage your money. Return of premium offers benefits for people who don’t want to feel like they’re losing out or don’t actively contribute to their other investments. 

What companies offer return of premium life insurance?

Fewer companies are offering term policies with return of premium. Mutual of Omaha is one that still does. American National and AIG both offer return of premium on their guaranteed universal life policies. 

Can I get my insurance premium back?

For term policies, you can only get your premium back with a return of premium feature. Some permanent policies have this as well. You can return your policy on the 20 or 25th anniversary date and get some or all of your premiums back. 

What happens to life insurance money if you don’t die?

The insurance company keeps your premiums at the end of the term you survive unless you have a return of premium feature. Then you get some or all of your money back. With permanent policies, they can mature between age 95 and 121. In that case, the company still pays out the benefits. 

Conclusion

Examine the math when considering a return of premium policy. Compare what you would spend on the rider to the opportunity cost. Could you get better returns elsewhere? 

On the other hand, some guaranteed universal life policies offer the rider free and treat it like a return policy 20 or 25 years down the line. 

How Abrams Insurance Can Help

As independent agents, we have access to over 70 unique life insurance companies – all top-rated. That gives us the ability to shop the market for you, saving you time and money. 

We are happy to sit down and look at the specifics with you about whether adding return of premium would be a good fit for your family. Many life insurance products (ROP included) are great for some families and poor choices for others. 

Protecting your family in the way that makes the most financial sense is our primary goal. 

You can compare the costs of policies without return of premium yourself. Use the instant quotes tool on this page to see cost differences between companies. However, the software does not yet allow return of premium comparison options. Give us a call at 858-703-6178, and we’d be happy to get you some numbers.