What Is the Return of Premium in an Insurance Policy?
Many people who are in the process of buying life insurance debate the benefits of term and whole life insurance policies. While these types of insurance are commonly purchased, a different type of insurance combines some of the benefits of both policies. Return of premium life insurance provides you with the possibility of getting the money you paid into the policy back at some point in the future.
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What is Return of Premium?
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Return of premium life insurance is a type of term life insurance contract. With this kind of insurance, you pick a specific amount of time that you want to be covered. If you die during the life of the contract, your beneficiaries receive a death benefit equal to the face value of the policy. If you live longer than the contract term, the insurance company returns the premiums that you have paid up until that point. This gives you a financial benefit at the end of the term instead of giving up all of the money.
Compared to Term
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While return of premium is a type of term life insurance, it is different from a traditional term life insurance policy. Like regular term life insurance, this type of policy only lasts for a specific number of years. The return of premium insurance policy costs a little bit more in monthly premiums when compared to what you would pay with a regular term life insurance policy. Many consider regular term a way to waste money because you do not get anything out of the money you pay in premiums if you outlive your policy. A return of premium policy fixes this problem.
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Compared to Whole
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Return of premium life insurance also has some features that are comparable to whole life insurance. With this type of insurance, a portion of your money goes towards investments. The insurance company uses a portion of this money to invest and still make money even if it has to return your premiums to you. One of the key differences between these two types of policies is that whole life insurance is a permanent type of insurance coverage, while return of premium is for a limited time.
Considerations
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Before purchasing this type of insurance, you need to determine if the extra cost is worth the possible return of premiums in the future. For example, if you invested the difference between the price for a term policy and a return of premium policy, you need to determine if the return would be greater than the premiums that you pay. This type of policy is not for everyone, but if you are concerned about wasting money with a term policy, this option can make sense.
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