Surprised to find out that certain life insurance policies pay back your money while you are still living?
Life insurance is for many a way to ensure their family’s financial security in the event of a catastrophic event. They are willing to pay the premium to get that safety net. Although there are many types of policies, the return of premium insurance is one that isn’t often mentioned. This type of insurance has a higher premium than term life insurance and you can have your premiums* refunded if the policy ends while the insured is still alive.
What is the return on premium life insurance?
Premium life insurance is similar to traditional term insurance. After a set period, the coverage ends. This is in contrast to permanent life insurance plans, such as universal life or whole life, which offer lifelong coverage. To determine which is best for you, ask your agent about the pros and disadvantages of permanent vs. term life insurance.
Premium life insurance does not have the traditional cash value of term life insurance. Instead, it builds cash value over the policy period. The policy owner can have the premiums* paid back to them if the insured is still alive at the end of the policy period.
Another way to see it is:
Pure protection is traditional term life insurance. It functions like auto insurance. You pay regular premiums and the insurance company will fix your car if it is damaged in an accident. The company will pay the claim if an accident occurs. The insurance company would not pay any money back if you have never had an accident. Term life insurance is the same. The policy owner will not get any money back if the insured person dies before the end of the policy. Both types of insurance are simple: the customer simply pays to be protected for that time.
Premium life insurance returns are different. If the insured person is not able to live, the insurer will still pay the death benefit. The insurer will reimburse 100% of eligible premiums* if the insured person survives the policy term (the most likely outcome).
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What does the return of premium insurance mean?
Let’s take a look at an example. Sara, a 30-year old female, is interested to compare traditional term life insurance with return-of-premium life insurance.
how Sara pays for her 30-year insurance policy. The monthly premiums for a return-of-premium life insurance policy are more expensive than traditional term life insurance policies. However, her net cost at policy’s end – if she is still alive – is lower than $0. In this instance, the company would refund all premiums and $3.60. She would be paying a net of $15,408 for a traditional term policy.
There are advantages and disadvantages to premium return life insurance
These are the benefits of choosing premium return life insurance
- You can return your premiums when the policy period ends. This can reduce the policy’s cost to $0.
- You can use the lump sum to pay for college expenses, increase retirement income, or repay a mortgage balance.
- If you need to borrow money, you may be eligible for cash value.
- You can get your cash value back if you cancel your policy within the policy period.
These are the disadvantages of choosing premium return life insurance.
These policies are more costly than traditional term policies because they will pay out a return on premium policies regardless of what happens.
You might have more money if you bought a traditional term policy, and then invested the difference.
It may be worth looking at the return on premium life insurance when you are considering term life insurance policies.