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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 overpay 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 over-payment yourself and do much better financially. 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 its expiration to get your over-payment back. What happens if you die during the policy period?  You have overpaid for the coverage, and all your beneficiary gets is the death benefit. Not to mention you have no access to the over-payment during the terms of the policy. Overall, 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, then concentrate your efforts on more important financial matters such as getting out of debt and then building wealth. Get more information on the benefits of term life insurance.

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