Term Life Insurance Premium Return- How It Works in 2024

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Term life insurance premium return allows policyholders to repay all premiums if they outlive the coverage period. With this feature, also called return of premium (ROP), the insurance company refunds all premiums paid if the insured survives the entire term.

For example, if you pay $500 annually for a 20-year $100,000 term life policy, you would get back the $10,000 paid in premiums after 20 years if you were still living. This gives term life similar to cash-value properties as permanent life insurance.

This article explains how term life insurance premium return works, including how it compares to standard term life insurance. We also outline the key benefits and drawbacks, provide illustrative examples, and discuss what types of consumers can benefit most from this kind of policy.

How Does Term Life Insurance Premium Return Work?

How Does Term Life Insurance Premium Return Work
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Term life insurance provides financial protection to your beneficiaries if you pass away during the policy coverage period. Here’s a quick overview of how standard-term life insurance works:

Term life insurance with a return of premium (ROP) rider works similarly but offers one extra benefit:

For example:

The returned premiums are not taxable since they refund the money you already paid.

ROP provides a “money-back guarantee” if you outlive the term length. This can make term life insurance more appealing to some consumers.

Benefits of ROP Term Life Insurance

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ROP term life insurance provides two main advantages compared to standard term insurance:

Dual Protection

ROP term life gives you:

So it provides life insurance coverage and a “backup” cash payout.

Tax-Free Premium Refund

The premium refund you receive at the end of the ROP term is not considered taxable income. This is because it is simply a return of premiums you already paid.

Some key tax advantages:

Builds Cash Value

Unlike standard terms, ROP policies build cash value over time that you can access in certain ways:

So ROP term life offers options to access funds if you need them before the term expires.

The cash value comes from the premiums you pay over time. An ROP rider converts term life into a policy with cash value attributes.

Things to Consider Before Buying ROP Term Life

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Before purchasing a term policy with a return of premium, it’s important to weigh the following factors:

More Expensive Premiums

For example, a 20-year $500,000 term policy for a 40-year-old may cost:

Policy TypeAnnual Premium
Standard term$300
ROP term$1,500

So evaluate whether the ROP fits your budget and insurance needs.

Must Pay Premiums on Time

To receive your full premium refund:

Be sure you can make consistent payments for the entire ROP term.

Shop Around for Rates

Finding the right rate can save you thousands over the policy’s life.

Who Should Consider ROP Term Life Insurance?

ROP term life is best suited for certain individuals and financial situations:

Want Insurance Plus Cash Back

ROP makes the most sense for those who:

It provides both death benefits and premium refunds.

Uncomfortable With Premium “Loss”

Some view standard term premiums as money “lost” if they outlive the policy. ROP prevents this by returning premiums paid.

ROP is best for those uncomfortable about not getting any premiums back.

Can Afford Higher Premiums

Since ROP costs significantly more than the standard term, you must have the financial means to pay the higher premiums.

It works for individuals who:

The standard term may be better if higher premiums are unaffordable.

Pros and Cons of ROP Term Life Insurance



So ROP term life provides unique advantages and drawbacks to consider carefully. Analyze your budget and insurance needs to decide if it is suited for your situation.

Features of ROP Term Life Insurance

Available Riders

ROP policies often allow you to add supplementary insurance riders for added protection:

Conversion to Permanent Life

Many ROP term policies allow you to convert to permanent life insurance within a certain period, such as before age 70.

This allows you to continue life insurance coverage past the term length.

Premium Payment Flexibility

ROP policies offer a range of premium payment options:

Choose the frequency that aligns with your budget and needs.

How to Shop for ROP Term Life Insurance

Follow these steps when evaluating ROP policies:

Compare Quotes from Multiple Insurers

Consider Your Budget and Goals

Look for Highly-Rated Insurers

Prioritize insurers that:

Read the ROP Rider Details

Taking the time to find the right ROP policy saves money and provides peace of mind.

Alternatives to ROP Term Life Insurance

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Regular Term Life Insurance

Permanent Life Insurance

Final Expense Insurance

For many, a standard term life policy offers sufficient protection at the best value. But permanent life or final expense plans better align with specific needs.

Always compare your options before choosing an ROP term life policy.

Top 3 ROP Term Insurance Companies

State Farm


CompanyA.M. Best RatingPolicy OptionsReturn of PremiumAdditional Information
State FarmA++ (Superior)10, 15, 20, and 30-year terms100% if outlive the termOne of the largest US insurance companies
Banner LifeA+ (Superior)10, 15, 20, 25, and 30-year terms100% if outlive the termSpecializes in term life insurance
SBLIA+ (Superior)10, 15, 20, and 30-year terms100% at the end of the termMutual company with low rates

Frequently Asked Questions

What is a term life insurance policy with a return of premium?

A term life insurance policy with return of premium, or ROP, provides a death benefit if the insured dies during the term length. It also returns all premiums paid if the insured survives the entire term. This gives it dual benefits not seen in standard-term life insurance.

How much more expensive is ROP term life insurance?

An ROP term life policy often costs 2-5 times as much as a standard term policy. The premium return benefit increases the premium costs and comes at an additional expense.

What happens if I miss ROP premium payments?

If you miss payments on the ROP term policy, it could lapse, and you would lose eligibility for the premium refund at maturity. You must make timely payments without any lapses to receive the full return of premiums.


Term life insurance premium return rider provides a unique combination of death benefit coverage with a cash payout if you survive the policy term. Returning all premiums paid if the insured outlives the coverage period, ROP term life insurance offers policyholders greater incentives beyond pure life insurance protection.

However, the premium return feature comes at an added cost, with ROP term life premiums running 2-5 times higher than standard term policies. The money-back-guarantee may be worth this higher price for certain individuals, but regular term life may sufficiently meet coverage needs for many families.

Consider your budget, risk profile, and financial goals when weighing ROP term life vs. alternatives like standard term or permanent insurance.

Key Takeaways

Reference Lists

  1. RetireGuide. (2021, January 5). Return of Premium Life Insurance: How It Works, Pros & Cons. Retrieved from
  2. Investopedia. (2023, May 11). Term Life Insurance: What It Is, Different Types, Pros and Cons. Retrieved from
  3. Investopedia. (2022, December 1). Are Return of Premium Riders Worth It? Retrieved from
  4. Bankrate. (2023, May 9). Term Life Insurance. Retrieved from
  5. Aflac. (2000, January 1). Return of Premium Life Insurance. Retrieved from
  6. Forbes Advisor. (2022, April 14). What Is Return Of Premium Life Insurance? Retrieved from
Term Life Insurance Premium Return- How It Works in 2024

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