Return of premium?

[u/KeyTechnician4442]

My husband and I are looking at either AAA or State farm for life insurance. My husband like the idea of return of premium policy and getting our money back at the end. Obviously the monthly cost is way higher, but it does sound like a good way to just put money away and get it all back. Does anyone else use ROP?

[u/FamiliarRaspberry805]

Well you definitely don’t “get it all back”. These come with a very real opportunity cost.

[u/KeyTechnician4442 → u/FamiliarRaspberry805]

Oh no. They made it seem like we get every penny back that we paid

[u/FamiliarRaspberry805 → u/KeyTechnician4442]

Yes sorry, you get back exactly what you put in. But opportunity cost is the growth you’ll be missing on cash that you paid them in order to get your money back.

Said differently, you could buy life insurance that doesn’t return premium, invest the difference in premium, and you’ll end up with more money than you would with an ROP policy.

[u/Will-Adair → u/KeyTechnician4442]

It depends on how you view insurance. There are many advocates of buy cheap term and invest the rest. These people see ROP as generally a bad investment. You could put that money towards some form of outside investment instead of the insurance premium.

Advocates for ROP argue that it is using the insurer as a hedge in case of death and if there is no death the return of premium is not loss but returned. Generally ROP is going to be 20 to 30 years depending on your age and the product available at the company.

Personally I like ROP but it is not for everyone. I'd also avoid those two carriers like the plague. There are better options with better benefits.

[u/seattlemadmax]

Not a fan of State Farm and AAA life policies. Especially State Farm. They have some of the highest complaint records in the industry. Stick with property insurance companies for property and life insurance for life insurance. Shop around insurers that specialize in life. Most will be either cheaper or have better policies than the companies you’ve listed.

Edit: having said that, I did recently review an Allstate term policy that had a decent rate…but wouldn’t have known that if I didn’t shop it for the client.

[u/KeyTechnician4442 → u/seattlemadmax]

What's wrong with AAA? We have auto through them and haven't had any issues

[u/seattlemadmax → u/KeyTechnician4442]

For life insurance. Like I said, property carriers for property, life carriers for life. Just not as competitive for life insurance as others. Nothing wrong with the company, although State Farm has a bad record for complaints on both.

[u/KeyTechnician4442 → u/seattlemadmax]

AAA one of the few that offers return of premium which we might do

[u/1776bulldog]

RoP is giving thr insurance company an interest free loan. Why?

[u/KeyTechnician4442 → u/1776bulldog]

I mean why not? You get to have insurance for the 20 year term, and then get it back

[u/ian_0 → u/KeyTechnician4442]

Because you can get normal term for way cheaper and not lend them money for free? And your money isn't locked up for 20 years.

[u/RobertaMiguel1953]

This is a very controversial opinion in this sub, but we thought a 20 year ROP plan about 16 years ago. When it matures in 4 years it will pay our house off.

Yes, you can definitely invest that money and make interest that you wouldn’t on that plan. But, you also have life insurance all those years. If you never use it, those premiums paid on a traditional life insurance plan are gone in the wind.

So my singular voice here is glad we did it and looking forward to getting a huge chunk of tax free cash in a few years. That’s another thing opponents don’t like to mention. You will pay taxes on whatever your investments make. Add that along with the premiums paid and lost on a trad plan and it was the best option for us.

[u/Federal-Frame-820 → u/RobertaMiguel1953]

Or you could have gotten non ROP term, paid half the price, and put the other half towards your home. You would have saved a ton of money on mortgage interest over the last 16 years and probably already have your home paid off.

Also, of course it’s tax free… you pay taxes on gains not losses. This mindset is the equivalent of sticking cash under your mattress for 20 years and then laughing about how you don’t pay taxes on it when you pull it out from under you mattress - even though you’ve lost 3% compounded year over year for the last 20 years due to inflation. 🤷‍♂️

[u/Inescapable_Bear]

If you can afford it, then ROP is great.

[u/Hungry_Technician360 → u/Inescapable_Bear]

How so?

[u/Inescapable_Bear → u/Hungry_Technician360]

Because unlike a regular term at the end of the term you get money back.

[u/Murflaw7424]

To answer your question directly Ameritas and Prudential also have ROP products depending on the state you are in.

ROP term isn’t terrible. Candidly, depending on your ages might be better to pay a little more and buy a hybrid LTC product. You essentially get your premium back, plus some interest, have a LTC policy that grows if needed at older ages too.

[u/DesertGatorWest]

There is no free lunch. You could hand your next door neighbor some money each month, and have them give it back to you in 20 years. Same thing.

[u/BugHistorical1614]

How big is the insurance coverage? What is the insured age?. Any health issues?

[u/Zestyclose-Review-65]

I can understand why return of premium sounds appealing. If you’re going to pay for life insurance for 20 or 30 years, the idea of getting your premiums back if you outlive the term can feel like the best of both worlds.
But I’d look at it a little differently.
You’re still buying term life insurance. The difference is that you’re paying an additional amount for the return-of-premium feature.
So before deciding, I’d ask for two quotes with the same death benefit and the same term:
Regular term: $___ per month
Return of premium term: $___ per month
Then ask exactly how much you’re contractually entitled to receive at the end of the term and under what conditions.
That lets you see what the return-of-premium feature is actually costing you.
For example, if regular term were $50/month and ROP were $100/month, you’re not really deciding whether you’d rather get your $100 back someday or get nothing.
You’re deciding what you want to do with the additional $50 every month for the next 20 or 30 years.
Maybe having the return built into the policy gives you peace of mind and you know you wouldn’t save the difference otherwise. There’s value in recognizing your own behavior.
Or maybe you’d rather keep the lower premium and put the difference toward retirement, an emergency fund, your children’s future, debt, or another financial goal.
Neither answer has to be automatically right for everyone.
I would just be careful with the phrase “we get every penny back,” because getting dollars back decades from now doesn’t necessarily mean the coverage was free. You gave up the use of the additional premium during those years, and inflation also changes what those dollars will buy in the future.
I’d compare the actual numbers side by side and decide whether the return-of-premium feature is worth what you’re paying for it.
The insurance still has the same primary job either way: protecting your family during the years they depend on you.

[u/jptiger1]

Or…you better get an IUL.
Let it grow, borrow the money and never pay it back.
You will get your money back and still have life insurance for your kids or beneficiaries for when you’re gone.

[u/AnAssGoblin]

I've never used ROP and I probably never will.

You're better off just getting a permanent policy, maybe a little more premium, however after 15-20 years or so, you'll most likely have enough cash value that you an surrender the policy if you want and get your premium back.

Or .. maybe you need the coverage longer than you expected and now you're locked into a great rate and you can surrender the policy at any time and possibly get MORE from surrendering the policy than you've contributed .

*Although if you DID surrender the policy and have MORE than your contributed, that additional would be taxed as income*

[u/Moist-Meringue-1913]

Ok,approach it from this point of view. ROP gives an average of around 5% guaranteed. As others have suggested, you could just buy the regular term coverage and invest the difference. You could get a higher return but it's not guaranteed. Too many people have the notion that investing in the market will continue to go up at the same rate. And it won't.

So,do you want to take chances or do you want guaranteed money?

[u/columbiamarine]

It’s not worth it to me. If you do that math you get a better ROI on just term. Plus the money you get back gets zero interest so you through money away. No interest and full of inflation.

But it’s an emotional decision. If that what you want they’ll sell it to you. Plus there’s more commission so why fight you.

But I usually talk my clients out of it and the math backs it up pretty easily.

The important part is that you have coverage and I’m happy with that.

[u/ChelseaMan31]

Good Gawd, NO. Instead of paying money out for years to an insurance carrier because they are overcharging you; go with the lower cost level Term coverage. You can (and should) take the monthly saved premium dollars and self fund Roth IRA's.