Return of premium term calculator

How to use it

1. Enter the yearly premium on the return-of-premium (ROP) quote.
2. Enter the yearly premium on a regular term quote for the same amount and length.
3. Enter the term length in years.
4. Enter the after-tax return you could earn if you invested the difference instead.

The tool needs the ROP premium to be higher than the regular premium. If it is not, the tool tells you to enter a higher ROP premium and shows no result.

How the math works

An ROP policy refunds the premiums you paid if you outlive the term. The tool treats the extra cost as an investment:

• Extra premium = ROP premium − regular term premium, paid at the start of each year.
• Refund = ROP premium × term length.
• Return on the extra premium = the yearly rate at which the extra payments would grow to exactly the refund. The tool finds it by repeated trial.

It also shows what the same extra payments would grow to at your alternative return, and says which is larger.

Hypothetical example, using the tool's starting values: ROP at $1,100 a year, regular term at $450 and a 20-year term. The extra premium is $650 a year, or $13,000 in all. The refund is $22,000. That works out to a return of about 4.8% a year, against about $20,130 if the $650 a year had earned 4%. The figures belong to the example, not to any insurer's quote.

What it assumes

• You outlive the term and keep the policy to the end, with every premium paid on time. Many ROP policies refund little or nothing if you stop early; the tool does not model partial refunds, so check your policy's refund schedule.
• Both premiums are level and quoted for the same amount, term length and health class.
• The refund is the full sum of premiums paid, received at the end of the term, with no interest.
• The tool notes that the refund is generally not taxable, because it returns premiums you paid. A tax professional can confirm your case.
• Your alternative return is entered after tax.

Where it stops being right

• The refund arrives in future dollars, so its buying power is lower. The inflation and your death benefit shows how much.
• If you die during the term, the beneficiary receives the death benefit, not a refund. The extra premium then bought no extra benefit. The odds of outliving your term gives the average odds of that for your age.
• The tool compares only the refund with an investment. It cannot say whether you would have invested the money.
• It does not compare two insurers' financial strength, conversion rights or riders. Ask for both quotes at the same rate class.

The return of premium term life insurance: is it worth it guide explains where the cost comes from. The buy term and invest the difference calculator runs a similar test against whole life, and the return of premium rider entry defines the feature.