Return of premium mortgage protection insurance

How return of premium term works

ROP term works like regular term during the policy: if you die, your beneficiary gets the death benefit. If you are alive at the end and have paid every premium, the insurer refunds what you paid. The refund comes without interest.

ROP is sold as a rider on term or as its own product. Americo's CBO 100 and CBO 50 are universal life policies. They return 100% or 50% of base premiums at the end of the cash back period. Premiums for riders are not included in the refund.

A refund of premiums is generally a return of your own money. Policygenius describes ROP refunds as tax-free. Tax rules can depend on the contract, so confirm with a tax professional.

The price trade-off

You pay much more each month for the chance of a refund later. Policygenius puts ROP at two to three times the cost of standard term. That extra amount is money you could save or invest instead.

The refund is a fixed number of dollars received 20 or 30 years from now. Inflation will reduce what it buys. Policygenius concludes ROP is not usually worth the cost and most people do better buying term and investing the difference.

Compare the two options with real quotes, not averages. Get a regular term quote and an ROP quote for the same coverage. Then estimate what the monthly difference could grow to in a savings or retirement account.

Surrender and lapse rules

Early cancellation is the biggest risk with ROP. Policygenius notes that depending on the insurer, you may not get your premiums back if you stop paying or cancel. Some contracts pay a partial refund after a set number of years; others pay nothing until the end.

Mortgages change often: people refinance, sell, or pay off early. If you think you might drop coverage once the house is paid off, ROP is risky. Ask for the policy's surrender value schedule in writing before you apply.

Who ROP fits

ROP can fit someone who will not invest the difference and values a forced-savings feature. It also suits people who are confident they will hold the policy for the full term and can afford the higher premium.

It usually fits poorly for tight budgets, because the higher premium can mean buying less coverage than you need. In that case, level term sized to the mortgage is the safer choice. See MPI vs term life and mortgage protection cost.

ROP can also suit someone who expects to stay in the home for the full term and has a stable income. If your job or family plans are likely to change, the flexibility of plain term is worth more.

ROP and age limits

ROP versions often have lower maximum issue ages than standard term. American Amicable's Home Protector ROP allows a 30-year term only through age 50. Its Easy Term limits tobacco users to ROP through age 40. If you are in your 50s, a shorter ROP term or plain term may be your only option.

Ask about living benefits too, since riders differ between ROP and regular versions. Our living benefits guide covers what to look for.

ROP term vs cash back universal life

Some carriers offer a cash back version built on universal life instead of term. Americo's CBO 100 and CBO 50 return 100% or 50% of base premiums at the end of the cash back period. The refund works through an enhanced surrender value rider.

These products include critical, chronic and terminal illness riders at no extra cost, according to Americo. Like ROP term, the money comes back only if you keep the policy to the end of the period.

Ask how the surrender value grows each year. That tells you what you would get back if you had to stop paying after a refinance or sale.

Questions to ask before you buy ROP

Get answers in writing before you choose ROP. What percentage comes back, and when? What is the surrender value in years 5, 10 and 15? Are rider premiums included in the refund?

Also ask what happens if you miss a payment and whether there is a grace period. Finally, compare the ROP quote with a level term quote from the same carrier so you know the true price of the refund.