Return of Premium Life Insurance Defined
Return of premium life insurance is a form of term life insurance in which you are guaranteed to either receive your death benefit or get your premiums back. It is touted as an alternative to those who believe a term life insurance policy is best, but who don’t want to loose out on the thousands of dollars in premiums should they outlive the term of their insurance policy.
How Does Return of Premium Life Insurance Work?
When you purchase standard term life insurance, you elect a period of coverage. This period usually ranges between 5 and 30 years. You pay a monthly premium during this entire period of coverage. The monthly premium is based on your age and health and on the amount of coverage you buy.
If you pass away during the term when your insurance is still active, your named beneficiaries receive the death benefit. This death benefit is a fixed number that is equal to the amount of coverage you purchased. In some cases, this death benefit is available as soon as you purchase the insurance, but in other cases, your beneficiaries will not receive the full benefit unless you have had the insurance for at least two years before you pass away. Your death also must be natural or accidental and your beneficiaries will not receive the death benefit if you take your own life.
If you outlive the term of your insurance, the death benefit is not paid out. For example, if you have a 20-year term policy and you live for 20 years and one day after you purchased the policy, your beneficiaries do not receive the death benefit.
Many people feel as though they have wasted their premiums if they outlive the term of their policy. Return of premium life insurance eliminates this problem by giving you back the money you paid in premiums in full, should you outlive the policy.
Is Return of Premium Life Insurance For You?
The premiums for return of premium life insurance are usually slightly higher than standard term life insurance. However, many people prefer these plans because you are guaranteed to get at least the amount of money you paid in back. Remember, however, that no interest is paid on the money you spent in premiums.
Thus, although you do get your money back with return of premium life insurance, you will either break even or be out a bit of money due to inflation. You should carefully compare this option to how much you could make if you interested in the difference in premiums between standard life insurance and return of premium life insurance before making your decision.