Return-of-Premium Life Insurance: Higher Cost, Money-Back Guarantee

Full analysis

Return-of-premium (ROP) life insurance refunds all premiums paid if you outlive the policy term — but that guarantee comes at a steep price: expect to pay three to five times more than a standard term life policy for the same coverage amount. The refund is not taxed as income, since the IRS treats it as a return of what you already paid, not as a gain. Most ROP policies are not available to applicants over age 60, so this is a product that typically must be purchased before then.

NerdWallet's assessment is that ROP insurance is not worth the extra cost for most people. The additional premium dollars would likely grow more if invested or saved in a high-yield account. A standard term life policy is cheaper, and if the idea of "wasting" premiums bothers you, a permanent life insurance policy offers lifelong coverage instead. If you do lapse or cancel an ROP policy before the term ends, you forfeit the refund entirely.