Part of our guide: Disability Income Insurance: Solutions, Tools and Guides →
Clients buy disability insurance for peace of mind. But if they stay healthy for their entire career, many feel they paid for nothing. A return of premium rider answers that objection directly.
Key takeaways
- A return of premium rider refunds premiums at a set age if few or no claims were paid, generally income-tax-free.
- In one example, the rider’s added premium produced a guaranteed internal rate of return equivalent of 5.82%.
- Premiums are returned less any benefits paid, and refunds can be taken in several forms.
If he never files a claim, he gets $37,745 back tax-free at 67 — a 5.82% guaranteed return equivalent on the added premium.
How the rider works
With a return of premium (ROP) rider, if the client reaches the rider’s end date without claims, all premiums paid are refunded. If they received some benefits, the refund is reduced by those benefits. Refunds are generally received income-tax-free.
Example
- 39-year-old male private school principal earning $80,000
- Benefit: $3,800 a month, tax-free if disabled
- Base premium: $71.46 a month, about $22,738 total by age 67
- With ROP: $118.63 a month ($47.17 more)
- Refund at 67 with no claims: $37,745 tax-free
That refund represents an internal rate of return equivalent of 5.82% on the additional premium, guaranteed. Results vary by age, occupation, benefit, and state availability. ROP isn’t an investment and shouldn’t be compared to securities.
Refund options
At the end of the rider period, clients may be able to take the refund as cash, leave it with the carrier to earn interest, receive installments, or annuitize it for lifetime income. Some riders instead return a percentage of premium (such as 50% or 80%) every 10 years, less claims.
Who it fits
Clients who understand the need but hate the idea of “wasted” premiums. For other ways to overcome price objections, see avoiding sticker shock with disability income.
Frequently asked questions
What is return of premium disability insurance?
A rider that refunds premiums paid, less any claims, if the policy reaches a set age or period without significant claims.
Is the return of premium refund taxable?
Generally no, when premiums were paid with after-tax dollars, though clients should confirm with a tax advisor.
How much does a return of premium rider cost?
It varies. In the example, it increased the monthly premium from $71.46 to $118.63.
Reviewed by Tim Fuller on 2026-09-25
Tim Fuller
President, SRS Inc.
Tim leads SRS Inc., a full-service IMO (Independent Marketing Organization) and BGA (Brokerage General Agency), connecting independent financial professionals with life, annuity, disability income, and long-term care solutions from 60+ carrier partners.
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