Which Life Insurance Return Your Premium if You Outlive?
Life insurance premiums can add up, so you might wonder if you can get cash back from life insurance if you’re still alive.
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Typically, the answer is ‘no’ because term life insurance doesn’t pay you back. After all, you’re still alive. Life insurance is a contract you undergo with the insurance company, and you understand the gamble that you might be alive when the insurance expires.
But one type of life insurance pays you back if you’re alive.
What Kind of Life Insurance Gives you Money Back?
Return of premium insurance gives you money back if you outlive the insurance. You can buy ROP insurance as a policy or a rider to a traditional life insurance policy.
What is the Return of Premium Life Insurance?
Return of premium life insurance does what it says – it returns the premiums you paid if you’re still alive when the insurance term ends. But there’s a kick.
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Your premiums will be higher because it’s a higher risk for insurance companies. If you’re still living at the end of the term, you receive 100% of the premiums paid back. But if you miss payments or default and the policy is canceled, you may forfeit your premiums.
Reasons to Consider Return of Life Premium
You might wonder why anyone purposely pays higher premiums for the same insurance coverage. It sounds crazy, but there are reasons this life insurance policy can work.
You need peace of mind knowing you’ll get your money back – If paying life insurance premiums is unsettling, ROP can be a good compromise. You’ll get your premiums back if you’re still alive; if you’re not, your beneficiaries will receive the life insurance payout.
It’s a forced savings account – If you aren’t great at saving, an ROP insurance policy can be an excellent forced savings account. While it’s not necessarily new money, since you paid the premiums, it’s money set aside for you that you’ll likely receive in your retirement years.
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Pros and Cons
It’s always a good idea to compare the pros and cons of any life insurance, including ROP, to ensure it’s right for you.
Pros:
You’re guaranteed your money back if you outlive the insurance policy and pay your premiums on time
You don’t pay taxes on the premiums returned
Cons:
You’ll pay higher premiums
You could be losing out on interest you could have earned on the money invested in the ROP policy
Here are some alternatives to the ROP policy for you.
How to use the Returned Funds for Seniors?
When you receive your premiums back from ROP insurance, it’s essential to put the money to work. It’s been sitting in your insurance policy for 20 to 30 years, and it didn’t earn interest or grow in any way, so now it’s time to make it grow.
A few options for your returned funds include:
CD or high-yield savings account – If you need the money in a liquid account, put it in a savings account or CD to earn interest. Please keep it in an account that’s not easily accessible and will earn the highest interest rates.
Buy a final expense insurance policy – If you’re worried about spending the money, consider investing it in a final expense insurance policy to cover your funeral and final medical expenses.
Invest in low-risk investments – If you have enough capital to cover your basic needs, consider investing the funds in a low-risk portfolio, such as one with ETFs, to help the money grow without too much risk.
How Does Inflation Affect Return of Premium Insurance?
The premiums you pay to the insurance company don’t earn interest, and there’s no adjustment for inflation. This means you receive exactly what you paid. The problem is you paid the premiums over 20 – 30 years, so the money you receive back today won’t have the same purchase power the money did when you invested it in the insurance.
Is Return of Premium Insurance Worth It?
If you need the peace of mind that you’ll get your premiums back if you outlive your insurance, then ROP is worth it.
Otherwise, there are better options. For example, whole life insurance or a final expense policy may provide what you need without the higher premiums. The money you save on the premiums you could invest, and make grow, rather than waiting 20 – 30 years for money that isn’t adjusted for inflation.
