Term life insurance is the most affordable type of life insurance you can purchase. It only lasts for a limited time. The premiums paid for coverage that is not renewed after the expiration date have been forfeited. To give term life policy buyers a way to return some of their premiums at the end, the Return of Premium Life Insurance was created.
Premium life insurance, also known as return of premium, can be an excellent addition to standard term policies. However there are some things you should know before adding it to your policy. This is how the guarantee works.
The Return of Premium Insurance
The return of premium insurance works exactly as its name suggests. A return of premium policy is a policy that will reimburse you some or all the premiums you have paid since the start of your term.
Only term policies can have return of premium life insurance. This feature is available in some policies, while others offer it as an optional rider. As you can see above, this option is not available from all carriers. Many policies and riders allow the insured to select the amount of their monthly premium they wish to be refunded. For example, a rider who will reimburse the insured 60 percent or 80 percent may be available at a lower price.
Who needs Premium Life Insurance Returns?
Your financial goals and financial situation will determine the value of a premium return life insurance policy. Although no one should have a return on premium life insurance policy it does offer some benefits. If you can afford it, a return of premium insurance policy is a good option. It will guarantee that you have some savings.
A large amount of money can be a great way of getting into retirement, especially since it is tax-free. It is important to remember that you are not getting additional or new money. Instead, you are getting back the money you have already earned. While premium life insurance returns can be a great way to save money or get money back, there are other savings options available that may offer a better return. You’re losing out on money that you could have earned if your cash had been invested.
The Average Return Cost of Premium Life Insurance
Premium features that are either included in a term policy or added as riders can be expensive to return. Premium riders and policies that return premiums will usually add an additional 30% to the cost of premiums. Some premiums cost more.
Let’s take an example of the price difference between a $250,000 30-year policy and one issued by State Farm. This policy would cost $19.90 per monthly for a 25-year-old woman in good health. Her monthly premium would rise to $51.77 if she added a premium rider to her policy. She would be responsible for $11,473.20 more over the term of her policy. If she lives beyond the term, she will receive $18,637.20 back.
The pros and cons of premium life insurance return
Like all insurance options, there are pros as well as cons to a premium return policy.
| Pros | Cons |
|---|---|
| If you keep your policy in force for the entire term, most or all of your premiums will be refunded | Premiums are more costly than term policies that do not return the premium rider. |
| Tax-free: The amount of premiums returned is the total. | Your investment doesn’t earn you any interest |
| The end of each term will reveal exactly how much you’ll receive | If the policy is canceled for any reason, no premiums will be refunded |
Pros
Premiums are refunded
This type of rider has the obvious advantage that your premiums are refunded at the end your policy’s term. As long as your policy is not expired, you will receive a guaranteed amount once it expires. This makes it easier to plan for retirement and paying off debts.
Tax free
You will get back exactly what you have paid. Planning for your financial future is much easier when you have a clear picture of the money you will receive.
Guaranteed Return
You will know exactly how much you’ll get back. There will not be any surprises.
Cons
Higher Premiums
Like any insurance policy, adding riders or other benefits comes at an additional cost. The cost of premium riders will increase, which means you’ll have to pay more upfront. This will result in you receiving more money back when your premiums are paid.
Earned interest is not available
A return of premium policy does not offer any interest, unlike other investment or savings options. It is possible that you will get less back than what you would with other investment opportunities.
You could lose your premiums
Your premiums will be lost if your policy is canceled. If you are concerned about your ability to pay your premiums, you may want to consider a regular-term policy.
Most Frequently Asked Questions
Which is the best life-insurance company?
There is no “best” life insurer for everyone. The best life insurance company is the one that offers the most coverage and the most value for money. Sometimes, what is best for you may not be the best for another. Because many life insurance companies cater to specific segments of customers, such as people with certain health issues, this is why there are so many.
What amount of life insurance do you need?
This question will depend on your financial situation and specific needs. You will need to have more coverage if you are the sole breadwinner of a family who is dependent entirely on you. Financial planners will tell that you need enough life insurance to cover your debts and provide for your dependents until they reach a certain age, such as when your children graduate from high school.
What happens if I am unable to qualify for traditional life insurance?
You may need guaranteed-issue insurance if your health is not good enough for most insurance companies to cover you. This insurance doesn’t require you to undergo a medical exam. These policies may be your only choice, even though they are more costly than traditional ones.
What are accelerated benefits riders?
These riders allow you to take the death benefit of your life insurance policy even if you’re still alive. These riders can be triggered by your inability or inability to provide care for yourself daily. If you are unable or become disabled in any of the six activities, you may be able to use some or all your death benefit to help pay for nursing home or home health care.