Life insurance is designed to protect the financial future of those you care about, but that protection can also benefit you in the long run. There are many excellent life insurance policies, but Term with Return of Premium guarantees that you will get 100% of your premiums back at the end of the term period if coverage is never used.
Let's take a look at how it works …
You buy a refund of the life insurance premium for the premium period, perhaps for a 20- or 30-year period. If you die during that time, your recipients will receive the death benefit. If you survive the policy, you will get exactly what you paid in (without interest). The money back is not taxable.
With a regular life insurance, if you are still alive when the insurance expires, you will not get anything back. The premium is set for the entire duration of the insurance ̵
Returning premium policies is similar to a regular life insurance policy, with the biggest exception being that if you live at the end of the period, you have two choices of what you can do with your insurance.
- You can choose to take the entire premium paid out over the life of the insurance in a one-time payment (refund) from the insurance company; or
- You can choose to use that insurance value (the accumulation of what you paid for the term) to purchase a fully paid insurance coverage amount (called paid insurance amount).
But everything has a price, right? Premium policy repayment is a more expensive option, but some people prefer to get their premium back if they are still living at the end of the policy.
Let's look at an example …
John is a 35 year old male. An average 30-year policy of $ 250,000 would cost John $ 290 annually. A refund of the premium period would cost $ 620 per year. John would have the same coverage during the same time period, but at the end of his 30-year period, the standard period would not have accumulated any value. With the refund of the premium option, John was able to get back all the premiums he paid – $ 18,600! If John is a dedicated investor, he may be able to invest the difference over time and move forward. But for most of us, the reality is that we would not invest the money. And at the end of 30 years we would have a value policy without value. The CDC's life expectancy for 2017 lists the total average life expectancy for men in all races as 76.1. So for John, the odds are in his favor that he will survive politics. The return of the premium option will also allow John to continue with life cover at the end of 30 years if needed. He can use the value he has accumulated in his policy (the $ 18,600 previously mentioned) and buy $ 43,500 in paid life cover. Or at age 65, he can get all the premiums he paid back to him – his $ 18,600. As with everything, it is always nice to have alternatives and this is a good alternative for those who want an order policy but still want some value.
Want to learn more about life insurance?
Visit our resource center or contact one of our licensed advisors, we are here to help.