One of the hottest life insurance products on the market right now is Return of Premium (ROP). If you insure your key employees or buy-sell agreements, you might want to consider this option.
ROP is an attractive alternative to traditional forms of life insurance, says Byron Udell, president and CEO of AccuQuote.com, a life insurance brokerage firm in Wheeling, Illinois. Historically, you could choose from two types of life insurance: term, which does not build cash value; and permanent, which includes a variety of products that develop some cash value. Premiums on permanent insurance can range from five to 10 times the premiums on term.
By contrast, ROP premiums are generally about one-third higher than term, and if the covered individual doesn't die before the end of the policy, the full amount of the premiums paid is refunded. In most cases, the refund is without interest.
"Normally, for businesses, covering a risk with insurance is just an expense," says Udell. "But with ROP, it ends up being a wash when the term is over. Rather than the money just bleeding out of the company, you'll get it back at some future date."
Of course, if you cancel the policy before the contract ends, your refund will range from nothing to minimal. If you have a key-man policy on someone who leaves the company, you can maintain the coverage or allow the individual to take it over until the contract ends.
Jacquelyn Lynn is a freelance business writer in Orlando, Florida.
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This article was originally published in the December 2004 print edition of Entrepreneur with the headline: Live Long and Prosper.
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