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Q: Should I Buy A Return of Premium Plan?

2011 April 27

No. Dave feels that Return of Premium plans (ROP) are just cash value plans in disguise.  You over pay for the true cost of insurance, similar to whole life plans, but instead of it being for the higher cost of insurance as you get older, the ROP plan refunds the money to you if you outlive the contract.  Just as with cash value plans, you could invest the overpayment yourself and do much better from a financial standpoint.  Not to mention many people are overpaying for their insurance and still carrying credit card and other types of debt.  The financial equation does not come out.  Additionally, many companies require that you complete the entire contract before the refund is available. What happens if you no longer need the insurance?  Many plans require you keep the plan until it expiration to get your overpayment back.You have to keep it to get your overpayment back.  What happens if you die during the policy period?  You have overpaid for the coverage since all you get is the death benefit.  Not to mention you have no access to the overpayment during the terms of the policy.  In all it is an emotional gimmick that many people consider since they do not foresee their own death. Dave’s advice is to get the term life insurance you need, at the best rate possible, and then concentrate all your efforts on more important financial matters such as getting out of debt and then building wealth. For more information on the benefits of Term Life Insurance click on Term vs. Cash Value.

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