"Return of premium" term life insurance comes of age

If you'd like to have term life insurance in place to provide for beneficiaries yet you're confident you'll outlive the life insurance policy, you now have many options for "return of premium" (ROP) term life insurance. Under this type of life insurance policy, if no death benefit has been paid by the end of your life insurance term, you receive all your premiums back.

With a traditional term insurance policy, you buy a coverage term, such as 15, 20 or 30 years, and pay a fixed annual price. If you don't die within that term, your contract ends and you receive nothing, having paid for the "risk" that you might have died.

An ROP term life insurance policy gives you 100 percent of your premium money back (it's tax-free) at the end of your term if no death benefit has been paid. Or put another way, "You can rent your insurance or you can buy it," says Alan Lurty, Senior Vice President at ING.

How much will it cost me?

An ROP term life insurance policy will cost more than a comparable traditional term life insurance policy, and there is a significant range among insurers for that surcharge, plus significant ranges depending on your age and the length of term you want.

It will really pay to shop around for the best term life insurance quote, but on the low end you can expect to pay 50 percent more than comparable traditional term life insurance. So, for example, if your annual life insurance rate for traditional term insurance would be $3,000, adding an ROP option could bring it up to $4,500 annually. On the high end, you might be looking at paying 150 percent more over the base premium, so that $3,000 premium would become $7,500.

Shoppers should also note that with a ROP term life insurance policy, generally the longer the term the less you'll pay out overall in premiums. So a 30-year ROP term policy could actually end up costing less total money, at the end of the term, than a 15-year ROP policy. How does that happen? Because the 30-year term gives the insurer more time to make its money back by investing your premiums. So make sure you price out different term lengths when getting a life insurance quote.

Generally, you will not be returned premiums for extra riders you may add to the ROP term policy.
Who considers it?

The likely customer for ROP term life insurance is a person who has the confidence he'll outlive his life insurance policy. Or it could be the person who can't get over the feeling that term life insurance is a "waste of money" if the death benefit isn't paid out. ROP term life insurance provides a way to hedge your bets no matter what happens.

What if I surrender my ROP policy early?

It's not wise to buy any life insurance policy if you don't intend to keep up on payments. However, if you do surrender an ROP term life insurance policy early, you will get some of your premiums back based on a sliding scale if you've held it for a few years. Check your life insurance policy details about that sliding scale before you buy.

Many life insurance companies offer no premium returns if you surrender your life insurance policy within the first few years. Your life insurance policy will spell out the rules for surrendering it, such as when partial premium returns would start and the sliding scale for those returns.

For example, just because you're halfway through your life insurance policy term doesn't mean you'll get half your premiums back if you surrender it. The longer you keep it, the higher percentage of premiums you'll get back, up to 100 percent at the very end of your term. (If you die during your term, your beneficiaries receive the death benefit without any premium return.)

Can I get it for less?

Life insurance companies such as ING and Genworth offer two flavors of ROP term life policies, usually called basic and enhanced (more expensive). Under the "basic" contract, you pay a lower life insurance rate than an enhanced life insurance policy because you get back less if you surrender it early.

For example, if you bought ING's 15-year term life "basic" ROP life insurance policy and surrendered it in year 10, you would receive 30% of your premiums back. If you held ING's "enhanced" 15-year life insurance policy for 10 years you'd receive 60 percent back.

For either basic or enhanced life insurance policies you always receive 100 percent of your premiums back if you get to the end of your term.

Invest the difference?

Maybe now you're thinking that another option would be to take the premium difference between traditional term life insurance and ROP term life insurance and invest the difference. Would you come out ahead at the end? It depends mainly on your term length. Lurty of ING offers this example: Say you're looking at traditional 30-year term for $1,500 or ROP 30-year term for $2,000 annually. That's $500 a year you could otherwise put into investments. To equal the money you'd get back from your ROP life insurance policy at the end of 30 years, you would need to see an investment return on the premium difference of about 7 to 8 percent. How well has your portfolio been doing? Lurty says that with ROP term life insurance policies you don't have to worry about "investing the difference" because it's being done for you.

Note that the example is for a 30-year term. With shorter-term ROP life insurance policies, like 15 or 20 years, you might indeed yield more at the end of the term by investing the difference. And you would need the self-discipline to actually invest those extra dollars each year.

Of course, should you die within the term, only the death benefit is paid out. Thus, don't view this as an investment product.

Expect to see more return-of-premium insurance policies as it catches on.

Companies selling return of premium term life insurance:

-American General Life Insurance Co.
-Fidelity Life Association
-Genworth Life & Annuity Insurance Co.
-ING Reliastar Life Insurance Co.
-Lincoln National Life Insurance Co.
-Pruco Life Insurance Co.
-Pruco Life Insurance Co. of New Jersey
-Transamerica Occidental Life Insurance Co.
-The United States Life Insurance Co. in the City of New York

10 Steps to Financial Success

Real world riches start with the 10 steps to financial success, either during college or right after. Think about it you've got your college diploma in your hand, and it signifies your entry to the "real world". Is it too early to start putting your soon to be good income into a wealth creation strategy? You'll be happy to know it isn't, and you can use the ideas listed below to get what you want.

10 Steps to Financial Success - How to Become Rich Right after College

Have a goal. Your 10 steps to financial success should always start with goal setting. Without it, you will have no plans or direction for achieving financial success. Goals must be SMART - specific, measurable, attainable, realistic, and time bound. Know the definition for financial success for you.

Do what you love. You will become rich more quickly and easily if you're doing something you love. When you get paid for doing something you have fun with, you feel motivated to work harder even if there is no significant increase in motivation or rewards. You also don't count the hours till you can leave your job because you're already enjoying yourself.

Pay off your debt. It's never too early to start clearing your name from debt. Know your credit score and do what you can to eliminate debt from your life. It's not bad to be in debt, but only if it's not earning as much interest as it would with credit cards. Also, it's not bad if you used it for investment purposes and the promised returns are greater than what you've borrowed.

Be healthy. You might wonder what your health has to do with financial success, but apparently, it has a lot to do with it. If you're healthy, you have lower medical expenses and insurance payments. You'll also see your total expenditure decrease if you cut back on smoking, drinking, and other health vices.

Save more and spend less. The fifth of the 10 steps to financial success is defined by practicality. You can't be rich if you don't know how to be practical. Don't spend more than you're earning and learn how to invest your money.

Take risks. You'll get nowhere if you always want to wait for things to happen rather than making things happen. Opportunities come once in a lifetime so grab them when they come your way!

Work hard. Financial success doesn't come to your life for free. You must be willing to sweat blood and tears for it.

Make your money work for you. The eighth commandment of the 10 steps to financial success is actually based on one of the main principles behind the success of the Rich Dad Poor Dad series from Robert Kiyosaki.

Be generous. Reward those who have helped you. If giving something another person needs won't cost you anything then give it! Share your wealth and you'll definitely see it multiply!

Be ethical. Lastly, be fair to other people. Treat them honestly. Do things by the rule even if you know that no one's going to catch your hand in the cookie jar. Ethics might seem to lower your profit margin at the start, but it's actually increasing your profit in the long run because more people are inclined to trust in you based on your actions.

These 10 steps to financial success may seem too simple, but it will definitely build you a solid financial foundation for your life. You may receive other seemingly more complex tips for financial success but when you break them down, you'll find all of them reverting back to one of the 10 steps to financial success stated here. So really, why complicate things when you don't have to?