For example, a 40-year-old male in a standard, non-nicotine class who purchases $500,000 in coverage for 20 years could have a term premium of $755 per year. An ROP policy would be $2,945. That's a $2,200 difference per year.
But the policyholder would receive $58,900 at the end of the 20 years according to ING U.S. Insurance Solutions' figures.
"If you took the difference between $755 and $2,945 and you wanted it to grow to that $58,000, you'd have to have a rate of return of almost 4 percent on a pretax basis in order to have your invested difference equal the same rate of return as the ROP," says Al Lurty, senior vice president and head of business development for ING U.S. Insurance Solutions.
That's a strong rate of guaranteed return. And there is no tax on the money because it is a return of your premiums. "Try to find a rate of return of 4 percent today -- good luck," says Lurty.The key is to look at the difference in the premium of what you would have paid on a regular term policy versus an ROP, and see if you could invest the difference and get a better rate of return. If you buy a 20-year ROP term life policy at age 45, you'd receive your chunk of money back at age 65 - just when you're ready for it. If you pass away during the policy period, your beneficiaries receive the death benefit. This strategy isn't right for someone who'd rather invest the difference between a term life policy and an ROP, or who thinks they'd do better elsewhere.