Should I Get a Return of Premium Term Insurance?
Return of premium life insurance offers you a return of your term life insurance premiums. This return of premium feature is not available on all term policies and you must usually specifically request that this feature be added to your policy. Make sure you understand how these policies work before buying one.
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Function
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Term life insurance with a return of premium functions by charging premiums that are more than the actual cost of insurance. The excess premium is then invested by the insurance company and earns a rate of return. These funds are then used to pay you back when the term of the policy is over.
Purpose
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The purpose of buying a return of premium term life insurance policy is to recoup the cost of the premiums you are paying for the length of the term. With ordinary term life insurance, policy premiums are paid to the policy, and when the policy term is up, the policy terminates. No refund of premiums is made. If you do not die within the policy period, no money is paid out.
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Benefit
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The benefit of a return of premium term life insurance policy is that you do not waste any of your money on making term insurance premiums during the time that you hold the policy. If you die within the term, your family receives the death benefit. But if the policy expires and you're still alive, you've not lost any of your premium dollars.
Disadvantage
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The disadvantage to a return of premium term life insurance policy is that your policy premiums may be up to five times as much as an ordinary term insurance policy. This higher cost is necessary to ensure that your policy premiums may be returned to you in the future.
Considerations
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A term life insurance policy with return of premium may be suitable for you. However, you also should compare the additional cost of a return of premium policy with the returns you could earn from a savings account. If you can earn just as much or more from a savings account or a bank CD, then you may want to retain control over your money rather than pay extra premium for the return of premium feature on the policy.
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