Question 1

1. What does return of premium mean in life insurance?

Accepted Answer

The return of premium (ROP) in life insurance refers to a type of policy that refunds all the premiums paid if the policyholder outlives the term of the policy. This feature is typically available with term life insurance. If you pass away during the policy term, your beneficiaries still receive the death benefit, but if you survive the term, the insurance company returns all your premium payments, essentially making the coverage free, minus inflation.

Question 2

2. Is return of premium life insurance a good deal?

Accepted Answer

Whether return of premium life insurance is a good deal depends on individual financial goals and circumstances. On the one hand, ROP provides a refund of premiums if the policyholder survives, making it attractive to people who don't want to lose money on insurance. However, ROP policies are significantly more expensive than regular term policies, and the premium amounts returned do not include any interest or growth. It may be more cost-effective to invest the extra money elsewhere, but for those seeking guaranteed returns with coverage, it can be a good choice.

Question 3

3. What is the return of premium in insurance law?

Accepted Answer

In insurance law, the return of premium is a clause that entitles the policyholder to a refund of the premiums paid if specific conditions are met, such as outliving the policy term. The legality of such policies is governed by insurance regulations, which may vary by country or state, ensuring the insurer adheres to the promise of premium repayment without violating any consumer protection laws.

Question 4

4. What is return of premium charge?

Accepted Answer

A return of premium charge refers to the additional cost that comes with policies offering the return of premium feature. These policies generally have higher premiums than standard term life insurance because the insurance company is taking on more risk by potentially returning the entire premium amount if the insured outlives the policy.

Question 5

5. How do you calculate return on premium?

Accepted Answer

To calculate the return on premium for a life insurance policy, follow these steps:
First, determine the total premiums paid over the life of the policy.
Next, compare that amount to the lump sum received as a refund at the end of the policy term.
The return on premium is typically a 100% refund of premiums paid if the insured outlives the term of the policy. However, to get a true financial return comparison, you would need to consider factors like the time value of money and alternative investment growth over the same period.