Return Of Premium Term Life Insurance

A return of premium refers to a term life insurance that guarantees return of your premiums if you outlive the policy. Typically, a return of premium term is expensive than traditional term policies.

What is return of premium term life insurance?

Return of premium term is a type of term life insurance by which premiums are returned when a policyholder outlives the policy.

Usually, in return of premium, death benefit and premiums do not change throughout a term. However, premiums could be higher than in level term insurance while death benefits could be lower.

Cash value

This is an amount that grows alongside your policy as you pay premiums. As in any other type of term life insurance, return of premium doesn't guarantee cash value.

Premium

This is a fee you pay for the insurance policy. In return of premium, premiums are leveled but higher than in traditional term insurance since it pays you back the premiums when you outlive a policy.

Death benefit

This is an amount that your beneficiaries receive if you die within a coverage period. Typically, in return of premium, death benefit is fixed, this means it doesn't change throughout a term. However, the death benefit is usually lower than in traditional term insurance.

Coverage length

A return of premium usually covers 10 to 30 years, depending on your needs and a policy provider.

How does it work?

A return of premium term life insurance can be bought as a standalone policy or as a rider. A single term may cover a certain period of time, for instance 10, 20 or 30 years. If a policyholder dies within a term, an insurer pays the policyholder's beneficiaries death benefit. But if a policyholder outlives a policy, the insurer returns premiums to a policyholder.

In case a policyholder cancel a policy, an insurer may return a partial amount of premiums or may not.

An example of return of premium

For examples; Let's say John has purchased a return of premium insurance policy that covers 20 years which offer death benefit of $ 20,000 for which he is required to pay $ 500 premium each year. If John dies within 20 years of coverage, his family will receive $ 20,000 from an insurer as a death benefit. But if John won't die within 20 years, he will be paid back his premiums which is equal to $ 10,000 ($ 500 yearly premium × 20 years of coverage).

Benefits of return of premiums life insurance

Return of premium guarantees you return of your premiums when you outlive the policy. Thus, you won't lost your money.

Drawbacks of return of premium

Return of premium is more expensive than traditional term insurance, this because it gives back your premiums once you outlive the policy.