The truth about critical illness return-of-premium

BY ANDREW STEWART

Hello and welcome to Insurance Matters, where I talk about pros, cons and tips on various forms of insurance products and industry happenings. Today I want to talk about “return of premium” a powerful little rider that can add an extra layer of peace of mind and put money back in your pocket.

So what is return of premium and how can it help you?

First thing I like about this feature is that it’s pretty straightforward to understand just by its name. A return-of-premium rider on a critical illness policy pay’s back the insured’s premium if he or she does not make a critical illness claim within a prescribed length of time of that policy. For example for a 36 year old male who purchased a normal $100,000 Term 75 CI policy would pay $81.36 monthly. If he added the ROP feature it would cost an extra $22.41 a month and at age 75 if he never made a claim he would get back $35,973. Not a bad forced savings coverage plan.

Is return-of-premium right for you?

Price wise a return-of-premium policy will be more expensive than one without. Assuming your need is being met and you have the ability to pay for the rider, I would recommend take advantage of the rider. If you do the math (your broker can for you), what the rider will return to you financially can be an amazing rate of return on your money for what the rider cost. But be careful just because the name is easy to understand how each insurance company chooses to use it can vary.

What are the advantages and disadvantages of return-of-premium?

I advise my clients all the time that a CI policy is one policy you’ll be happy if you never have to use it, because that would mean you lived a long and healthy life. If you do need to use it, you’ll be thankful for the extra money to help you get better. The advantage of the rider is if you do not end up making a critical illness claim, you get fully reimbursed for all the premiums you’ve paid during the lifetime of the insurance contract. Now I know we all wish our car insurance policies could do the same.

The obvious disadvantage is the rider can be costly. Having coverage should never be sacrificed over wanting a money back guarantee. So always make sure you stay within your budget and secure the coverage first. The other smaller disadvantage is you only get back what you paid with no interest. For some this could be looked at as lost earning potential and for others it could be chalked up to it being the cost for peace of mind.

The smaller brother to ROP is ROP on death. Instead, this rider provides the benefit that if you pass away before making a claim against the policy the insurance company will pay all premiums to your named beneficiaries.

You may be strong and healthy, and you may think that you can beat any critical illness that comes your way. And you may be right. But on average, people are living longer. In fact, illnesses that would have ended in death just a few years ago are now being treated and even cured. That’s great news but it also means that the chance of being diagnosed with a critical illness, and surviving it, is greater, too. In fact, living through the treatment process and surviving a critical illness can cause financial hardships for many people. Just something to think about…..