What is Return Of Premium or ROP
Return-Of-Premium Term or (ROP Term) in a nutshell is a term life insurance policy that has a feature built into the policy that guarantees to return all or a prorated portion of your premiums after you have had the policy for a certain number of years. An example would be if you purchased a 20 year level term policy with the return of premium feature.
After 10 years of premium payments if you decide you no longer needed the protection you could turn the life insurance policy in and get approximately 50% of your premiums back in the form of a refund. However if you kept the policy for the full 20 years you would receive a 100% refund of all the premiums paid. Some people feel that the slightly higher premium that they would have to pay for the return of premium feature is justified because they feel their money is not wasted.
Example: Lets look at a female age 35 and in excellent health: A traditional 250,000 term life policy for 20 years would cost approximately $150 per year. In 20 years she would have paid in $3000. There would be no cash value and no refund. The same policy with return of premium would cost $645 per year for 20 years. At the end of the 20 years she would receive a check for $12,900 tax free which represents 100% of all the premiums paid.