Term Life Insurance Articles
Choosing Between Convertible Term Life Insurance And Return Of Premium Policies
2010-01-28
Two of the most attractive forms of term life insurance coverage are convertible and return of premium policies. These policies each offer something to buyers at the end of their terms. This is in contrast to other types of term life insurance in which the term simply ends, and no premiums are returned. In addition, no benefits are offered, other than the chance of renewal at an occasionally discounted rate. Both plans cost more than traditional insurance models. However, the benefits are well worth the costs to many consumers. Choosing between the policy types can get difficult, and before making a decision, it's helpful to understand some of the advantages and disadvantages of each.
Both policy types have some value over a standard term life insurance policy. Return of premium (ROP) policies give policy holders all of their premiums back at the end of the policy term. The term is usually fairly long, ranging from around 20-30 years. If the policy holder cancels the contract, the premiums are not returned. Convertible plans are often compared or even confused with ROP. However, convertible term life insurance policies don't actually offer a straight return on premium. Instead, they can be turned into a whole life insurance policy after a certain point, and any premiums paid into the policy are transferred into the new policy.
Term life insurance quotes tend to be fairly expensive for either of these types of policies when compared to other forms of term life insurance. This is because the insurers don't stand to make as much money through policies that return the buyer's premiums, whether through cash or through conversion to a whole life policy. However, convertible plans may be less expensive than return life plans. In both cases, insurance companies make the majority of their profits on investments made with the monthly term insurance premiums. Coverage levels may be lower than some level policies, but this will vary depending on your insurer.
To decide which policy type is right for you, you'll need to consider your long-term financial goals. If you're putting money away into a 401k or another type of investment, you might enjoy the tax-free nature and low hassle of the return of premium policies. Young buyers who don't have a retirement account might appreciate the more investment-oriented (and certainly more long term) solution offered by convertible insurance. Talk your options over with an insurance agent, and be sure to think not only about premiums and coverage levels, but also whether your policy will be acceptable to you 20 or 30 years down the road.
