What Is Return of Premium Life Insurance?

Shawn Plummer, CRPC

Chartered Retirement Planning Counselor

What Is Return of Premium Life Insurance?

Return of premium life insurance is a type of term life insurance that’s a little different from your regular term life policy. You might have encountered this while searching for the perfect insurance policy, but what does it mean?

Typically, term life insurance provides a death benefit to your beneficiaries if you pass away during the policy’s term. However, if you outlive your policy, the premiums you’ve paid over the years are returned to you – hence the name. It’s like a money-back guarantee on your insurance policy.

For instance, if you purchased a 30-year policy and paid $100 monthly, you would receive $36,000 (30 years x 12 months x $100) if you outlived the term.

Return Of Premium Life Insurance

Does Return of Premium Life Insurance Have a Cash Value?

Unlike whole life insurance, this policy does not build cash value over time. Instead, it offers a lump sum refund of the premiums paid if you outlive your term without interest or additional value.

How Does Return of Premium Life Insurance Work?

Now that we understand this policy let’s explain how it works. It operates similarly to a traditional term life insurance policy but with an additional ‘return of premium’ rider. This rider is an extra feature you can add to your policy for an additional cost.

Should you outlive your policy, the insurance company will refund all the premiums you’ve paid over the years. However, if you pass away during the term, your beneficiaries receive the policy’s death benefit, just like regular term life insurance.

Do You Pay Taxes on Return of Premium Life Insurance?

The good news here. In most cases, the IRS does not consider the return of premiums as income; therefore, it’s usually tax-free. However, tax laws can change and are subject to individual circumstances, so it’s always best to consult a tax professional for advice tailored to your situation.

Do I Get My Money Back If I Outlive My Life Insurance?

With a traditional term life insurance policy, you won’t receive any money back if you outlive your term. However, if you have a policy, you’ll get all the premiums you’ve paid over the years refunded.

Is Return of Premium Life Insurance Worth It?

The worthiness of this type of life insurance varies depending on individual needs and financial goals. On the one hand, it provides peace of mind knowing you’ll get your money back if you outlive your policy. But on the other hand, it costs significantly more than a regular term policy.

What Is the Catch with Return of Premium Life Insurance?

While the prospect of getting your premiums back is enticing, there are a few things to consider. The primary catch is the cost-return of premium policies can be substantially more expensive than traditional term policies. Additionally, if you cancel your policy before the term ends, you may not get a full refund of your premiums.

return of premium life insurance cost

While discussing this, it’s essential to consider the cost factor. Generally, these policies cost more than regular term life insurance. This is because the extra premium you pay goes toward the ‘return of premium rider that guarantees your refund if you outlive the term.

For example, you’re comparing a standard term life insurance policy and a return of the premium policy. The term policy might cost $30 per month, while the return of premium policy costs $50. So while you’ll get your money back with the latter if you outlive the term, you also pay $20 extra monthly. Whether this is worth, it depends on your financial goals, needs, and peace of mind.

What Is Return Of Premium Life Insurance

return of premium life insurance pros and cons

As with any significant financial decision, weighing the pros and cons is essential. One clear advantage of this policy is the refund of your premiums at the end of the term. It can be pretty comforting to know that, while you’re protected if the worst happens, you also have a money-back guarantee if it doesn’t.

On the downside, the higher cost is a significant drawback. Furthermore, you won’t earn any interest on the premiums returned, meaning you could earn more by investing the difference in premium costs elsewhere.

In essence, you need to carefully consider your circumstances, financial situation, and your family’s needs before deciding if the policy is proper for you.

Next Steps

Remember, life insurance is about securing your family’s financial future and giving you peace of mind. If having a guaranteed return on your premiums brings you that peace, then the extra cost of this life insurance might well be worth it. As always, seeking advice from a trusted financial advisor is beneficial when making significant decisions.

Return Of Premium Life Insurance Quotes

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Questions From Our Readers

How to find the best return of premium life insurance companies?

To find the companies, compare quotes, review financial ratings, customer satisfaction scores, policy features, and riders offered by various insurers. Always prioritize companies with excellent reputations in the industry.

How do I get the return of premium term life insurance quotes?

To get return of premium life insurance quotes, visit insurers’ websites and fill out their forms, providing personal and health information. You can also use online comparison tools or consult with an insurance agent.

What is the return of premium rider life insurance?

This is an add-on to a term life insurance policy. It ensures that all your paid premiums will be refunded if you outlive the policy term.

What is the benefit of the return on the premium?

If you have a term life insurance policy with a return will get a refund of all the premiums you paid if you don’t pass away during the policy term. This means that you won’t have a net cost for the policy.

What are the average rates of return for whole life insurance?

If you’re considering buying a whole life insurance policy, you can ask your agent about the interest rate the insurer will set. The average annual interest rate is 1.5%, as reported by Consumer Reports.

Can you sell a Return of Premium term life insurance policy?

Potentially if you are over age 65 and very unhealthy. Buyers also like to see the option to convert the policy into a permanent life insurance policy.

Shawn Plummer, CRPC

Chartered Retirement Planning Counselor

Shawn Plummer is a Chartered Retirement Planning Counselor, insurance agent, and annuity broker with over 14 years of first-hand experience with annuities and insurance. Since beginning his journey in 2009, he has been pivotal in selling and educating about annuities and insurance products. Still, he has also played an instrumental role in training financial advisors for a prestigious Fortune Global 500 insurance company, Allianz. His insights and expertise have made him a sought-after voice in the industry, leading to features in renowned publications such as Time Magazine, Bloomberg, Entrepreneur, Yahoo! Finance, MSN, SmartAsset, The Simple Dollar, U.S. News and World Report, Women’s Health Magazine, and many more. Shawn’s driving ambition? To simplify retirement planning, he ensures his clients understand their choices and secure the best insurance coverage at unbeatable rates.

The Annuity Expert is an independent online insurance agency servicing consumers across the United States. The goal is to help you take the guesswork out of retirement planning and find the best insurance coverage at the cheapest rates

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