Return of premium term life insurance offers a way for term policyholders to get their money back at the end of their policy’s term. It’s a good option for those who aren’t looking to risk paying for life insurance and having their family possibly not get the payout at the end of the policy term and lose all the money they paid into it in premiums. Return of premium insurance protects against losses in case the insured outlives the policy term.
What is Term Life Insurance?
Term life insurance offers a guaranteed death benefit paid as long as the insured person dies during the specified period of the policy. The word “term” in the phrase “term life insurance” refers to the specific number of years the policy is active from the date your coverage takes effect. Term life policies last for whatever period of time you select when you buy your policy; whether it’s 10, 15 or 20 years depends on what you choose. If the term ends before the insured’s death, the policyholder can either renew the policy or allow the policy to terminate.
Term life policies only have a death benefit component and have no other saving components associated with permanent life insurance policies. Your age, life expectancy and health determine the premium you pay for a term life policy. If you die during your policy’s term, your beneficiaries will be paid the decided-upon death benefit amount.
Some insurance companies may allow you to convert your term life insurance policy to a permanent life insurance policy when your term expires. As the name suggests, a permanent life insurance policy guarantees a death benefit for your beneficiaries as long as you continue to pay your premiums. Permanent policies do not expire, and they include a cash-value component that builds over time. While you may not need to submit to another underwriting process when you convert from term life to whole life, you’ll pay a significantly higher premium for your new policy because your death benefit is guaranteed.
What is Return of Premium Life Insurance?
Return of premium term life insurance allows you to be paid back the premiums you paid into the insurance policy if the insured person does not die during the term of the term life policy. If the insured dies during the term, then the death benefit is still paid to the beneficiary. If they do not die, the premiums are refunded to the policyholder.
A return of premium insurance policy can be purchased as a rider or as a standalone policy. A life insurance rider is something you can add to an insurance policy to enhance it in some way. Each rider you add to your policy increases the price you pay per month for coverage. If you purchase a return of premium life policy as a standalone new policy, you can choose the policy term, just like you would with a regular term life policy. In the same way, if the insured dies during the term, the death benefit is paid to the beneficiaries.
The refund from the life insurance policy is not taxable because the IRS considers it to be a return of the payments you’ve previously made. While you get something back if you don’t die during the term with a return of premium life policy, the premium payments of this type of policy are typically higher than a regular term life policy.
Who Benefits from Return of Premium Life Insurance?
Return of premium life insurance benefits different people in different situations. Younger people benefit the most from the policies because they are guaranteed to get their money back at the end of the policy’s term. Because they are younger, they are less likely to die of old age or have more health complications resulting from age, which decreases the possibility that their beneficiaries will receive the policy’s death benefit.
If you’re younger and still wish to get a life insurance policy but don’t want a permanent policy, a return of premium policy could be the most beneficial because you won’t lose anything if the policy ends and you’re still alive. This can be an appealing choice because younger men and women are earlier in their careers, meaning that the return of premiums can be especially beneficial.
A return of premium policy is beneficial to children whose parents bought the policy when they were little. This is because the children will be covered financially no matter what. If you die during the policy’s term, your children will get the death benefit. If you don’t die during the term, then you didn’t waste that money on premium payments and the money can now go toward your children’s tuition or another financial undertaking on their behalf.
Recent retirees benefit from return of premium life insurance if they had previously purchased the term policy but who don’t want to switch to a whole life insurance policy. Whole life insurance policies can be expensive, but a return of premium term life insurance policy can provide you with access to more funds in retirement for your spouse or children if you don’t die during your term. It’s also a nice place to keep money for a period of time instead of a savings account. It ensures that if you die, your loved ones are financially covered.
Differences Between Return of Premium and Whole Life Insurance
The main difference between a return of premium policy and a whole life policy is the term of the policy itself. Whole life policies are permanent policies, which means they last for the entirety of the insured’s life. Return of premium policies are term policies, meaning that they only last for a set period of time.
A whole life policy is a true investment because you can borrow money against it, and it has a cash value that accumulates. A return of premium policy has no investment aspect to it — you’re just ensuring that you’ll receive some money if you don’t die during your term. Return of premium policies ensure you don’t lose more money at the end of the policy, but you don’t make any extra money in the meantime.
Compare Life Insurance
As is the case with all types of life insurance, it’s a good idea to thoroughly research your options before you sign onto a policy. Benzinga provides reviews and insights on the following insurance providers offering return of premium policies. You may want to begin your research using the links below.
- securely through Ladder Life Insurance's websiteBest For:Adjustable coverage
Ladder Insurance Services, LLC (Cal. license # 0K22568; Ark. license # 3000140372) offers term life insurance policies: (i) in New York, on behalf of Allianz Life Insurance Company of New York, New York, NY (policy form # MN-26); and (ii) in all other states and the District of Columbia on behalf of Allianz Life Insurance Company of North America, Minneapolis, MN (policy form # ICC20P-AZ100 and # P-AZ100). Only Allianz Life Insurance Company of New York is authorized to issue life insurance in the state of New York. Insurance policy prices, coverages, features, terms, benefits, exclusions, limitations and available discounts vary among these insurers and are subject to qualifications. Each insurer is solely responsible for any claims and has financial responsibility for its own products.
- securely through Haven Life Insurance's websiteBest For:Under Age 64
Haven Term is a Term Life Insurance Policy (ICC21 Haven Term in certain states, including NC) issued by C.M. Life Insurance Company (C.M. Life), Enfield, CT 06082. In New York (DTC-NY) and California (DTC-CA), it is issued by Massachusetts Mutual Life Insurance Company (MassMutual), Springfield, MA 01111-0001.
Is Return of Premium Term Life Insurance Right for You
Though return of premium policies are significantly more expensive than standard term insurance, you get your premiums back if you don’t die over the course of the policy’s term. Because of these high payments, return of premium coverage can cost you the opportunity to invest this money and see a higher return. Compare the price of standard term and return of premium term insurance before you choose your coverage.
Frequently Asked Questions
Do you get any money back at the end of term life insurance?
No, you do not get any money back at the end of a typical term life insurance policy. Term life insurance policies last for a certain period of time and there is no benefit or money paid to the insured or the beneficiaries unless the insured dies during the term. At the end of the policy’s term, the insured does not get back any moneyt they paid into the policy unless they purchased a rider specifically to return the premiums.
How do you calculate return on premium?
You calculate return on premium by adding up all of the premiums you’ve paid into the policy. There is no interest on the premiums, so you get back the same amount of money that you paid into the policy over the term, and there is nothing added or taken away.
How much more is return of premium term life insurance?
Typically, return of premium term life insurance costs two to three times the cost of regular term life insurance.
Benzinga crafted a specific methodology to rank life insurance. To see a comprehensive breakdown of our methodology, please visit our Life Insurance Methodology page.