Term life insurance is designed to secure a guaranteed, tax-free death benefit for a set number of years. Most people purchase term life insurance to create a “safety net” that would replace their income for their family if they died prematurely.
But, does term life insurance accumulate cash value? Usually the answer is “no,” but in this quick guide we’ve identified a few lesser-known exceptions.
Quick Article Guide:
- What Is Return of Premium Term Life Insurance?
- Cons of Return of Premium Term Life Insurance
- United of Omaha’s Return of Premium Options
- American General’s Return of Premium Options
- What Is Guaranteed Universal Life Insurance?
- How We Can Help With Your Life Insurance Needs
What Is Return of Premium Term Life Insurance?
Return of premium term life insurance, or ROP insurance, is a form of term life insurance that will refund all of the money you have paid into your policy when you outlive it. As you pay your premiums each month, your policy accumulates a cash value that grows over time. If you pay your premiums on time for the entire duration of your term, your policy will refund all the money you paid in, or provide you with a “return of premium” at the end of your term.
The major benefit of ROP term life insurance is that your life insurance policy is essentially free if you outlive it.
As an example: We recently worked with a 40-year-old man named Raj who wanted to purchase a 30-year $500,000 ROP term policy for income protection. Raj hopes to retire by the age of 70, and when he retires, he will no longer need life insurance.
Actual Rates for a $500K 30-Year ROP Term Life Insurance Policy (Healthy Male, Age 40):
- Monthly Premium: $122.45
- Total Return of Premium After 30 Years: $44,082.00
*Monthly rates are accurate as of 05/01/2017 and are provided for illustrative purposes only.
Term life insurance was not designed to be an investment. Term life insurance was designed to give you peace of mind until your need for life insurance has diminished or been eliminated. With that being said, a return of premium policy can be a great compromise. It can provide your family with the safety net they need, while allowing you to save for the future.
Cons of Return of Premium Term Life Insurance
Before you decide to purchase a return of premium life insurance policy, there are some potential downsides you should be aware of:
Most return of premium term life insurance policies are only offered for 20 or 30 year terms. In order to receive a full refund at the end of your term, you must make all of your payments on time.- Only a handful of the insurance companies offer ROP insurance, so it is not as competitively priced as traditional term life insurance. However, if you outlive your policy, your life insurance is essentially free.
- Return of premium life insurance is expensive. ROP insurance policies must charge a higher monthly rate than a traditional term policy because they must invest your money to earn interest. This interest is used to fund the cost of your life insurance policy.
- If you pass away before your term has ended, your family will not receive the cash value your ROP policy has accumulated.
In the example above, Raj would have been able to purchase a traditional term life insurance policy from the same company for less than $50 dollars per month, but he would not receive all of his money back at the end of the term.
For these reasons, some financial experts recommend purchasing a traditional term life insurance policy and investing the difference independently. This can prevent you from losing your cash value if you miss a payment, but you will have to pay for the cost of your insurance each month. While saving your own money requires more discipline, it will allow you to access your money at any time, if needed.
Cash Value Life Insurance Options
Return of premium life insurance policies can be a great choice for those who are good at paying their recurring bills on time and need life insurance for 20-30 years. We often recommend ROP insurance to younger healthy applicants under the age of 50 due to its higher cost. If you are worried about not being able to easily afford your monthly premiums, we recommend avoiding return of premium insurance.
In our initial client/agent conversation, we’ll discuss your needs for the life insurance coverage to help you select the right policy for your situation. We also provide a free pre-qualification risk profile assessment. The risk assessment will help us determine which life insurance companies will provide you with the best possible rates.
Each insurance carrier has its own unique “underwriting guidelines” or criteria used to determine a person’s risk profile. In addition, each life insurance company sets its own rates. By having access to more than 60 companies, we’re able to match our clients with the life insurance company that will offer them the best policy at the lowest cost.
United of Omaha’s Return of Premium Options
In recent years, United of Omaha introduced one of the best return of premium policies available. United of Omaha is a Fortune 500 company that was founded in 1909, and they are rated as an A+ (Superior) company by AM Best.
Aside from their sponsorship of the Wild Kingdom TV show in the 1960’s, United of Omaha is well-known in the insurance industry for their guaranteed universal life insurance policies that offer a return of premium. What’s great about their GUL policies is that you do not have to keep your coverage active for 30 years before being eligible to have a portion of your premiums returned.
Here’s How United of Omaha’s ROP Policy Works:
- After 15 years, United of Omaha will allow you to receive 50% of the money you have paid into your policy.
- After 20 years, United of Omaha will return all of your premiums if you surrender your policy.
- United of Omaha offers a chronic illness rider with their GUL policies. This benefit is similar to long-term care coverage because it allows the insured to access up to $500,000 if they are unable to perform 2 of 6 activities of daily living for more than 90 days. Activities of daily living include: eating, bathing, dressing, toileting, transferring, and continence.
These features provide flexibility and options making them ideal for most of our clients, especially considering how much life can change in 20 or 30 years. If your beneficiary dies, for instance, you may not want to keep your policy. Instead, you’ll be able to surrender your coverage and access the money from your policy to retire or pay bills.
Actual Rates for a $500,000 ROP Guaranteed Universal Life Insurance Policy From United of Omaha
| Current Age | Male | Female |
|---|---|---|
| 30 | $202.55 | $167.50 |
| 35 | $236.25 | $189.20 |
| 40 | $286.75 | $229.70 |
| 45 | $339.90 | $273.75 |
| 50 | $422.25 | $354.15 |
| 55 | $560.25 | $451.45 |
| 60 | $734.65 | $587.10 |
*Monthly rates are accurate as of 05/01/2017 for applicants in excellent health. Rates are level to age 100 and are provided for illustrative purposes only.
For accurate rates based on your age or health profile, please feel free to call us directly, toll-free at: 855-902-6494.
American General’s Return of Premium Options
American General, or AIG, also offers a return of premium insurance policy that is similar to United of Omaha, but it offers lower rates because it does not include the “critical illness rider.” American General is an A (Excellent) rated company by AM Best, and they were founded in 1919.
Here’s How American General’s ROP Policy Works:
- After 20 years, American General will allow you to receive 50% of the money you have paid into your policy.
- After 25 years, American General will return all of your premiums if you surrender your policy, or up to 40% of your policy’s face amount.
While American General’s policy does not offer a partial return of premium after 15 years or a full return of premium after 20 years like United of Omaha, their policies tend to be less expensive overall. Below we’ve provided actual rates for a lifetime GUL policy with a $500,000 death benefit.
Actual Rates for a $500,000 ROP Guaranteed Universal Life Insurance Policy From American General
| Current Age | Male | Female |
|---|---|---|
| 30 | $196.95 | $165.10 |
| 35 | $228.70 | $194.20 |
| 40 | $252.70 | $205.70 |
| 45 | $302.40 | $242.95 |
| 50 | $378.90 | $312.95 |
| 55 | $463.90 | $388.90 |
| 60 | $611.25 | $501.40 |
*Monthly rates are accurate as of 05/01/2017 for applicants in excellent health. Rates are level to age 100 and are provided for illustrative purposes only.
For accurate rates based on your age or health profile, please feel free to call us directly, toll-free at: 855-902-6494.
What Is Guaranteed Universal Life Insurance?
Guaranteed universal life insurance should not be confused with traditional non-guaranteed universal life insurance, which requires an investment.
Guaranteed universal life insurance works just like term life insurance, but rather than securing rates for a specific number of years, a guaranteed universal life insurance policy will guarantee your cost and coverage to the age of your choice. Most guaranteed universal life insurance policies offer level rates and coverage until age 90, 95, 100, 105, 110, or even 121, depending on your needs.
GUL policies do not require an investment and they do not build a cash value. In addition, just like a term insurance policy, a guaranteed universal life insurance policy can be canceled at any time with no costs or penalties.
To learn more about guaranteed universal life insurance, please read our article, “What Is Guaranteed Universal Life Insurance?”
How We Can Help With Your Life Insurance Needs
No matter what type of life insurance you need, we can help. Term Life Advice is an independent, no-cost brokerage that represents more than 60 top-rated life insurance companies. Over the years we’ve helped thousands of clients protect their income, provide an inheritance, or reduce estate taxes for future generations.
Give us a call today to obtain free quote comparison. With a few questions about your health and lifestyle we’ll be able to provide you with accurate rates from multiple companies, with and without “return of premium” options.
Our service is free and we do not have quotas, we’re here to give you the advice you need. We can be reached at: 855-902-6494, or you can request a free online insurance quote below to instantly compare rates from dozens of highly-rated companies.
No Comments
Be the first to start a conversation