Most people purchasing life insurance do so with the understanding of securing financial futures for their family members in case something goes wrong. Simple Coverage – Term Life Insurance pays death benefits if the policyholder dies within the specified term of the life insurance contract. What happens when you outlive the policy? Now, there is nothing that can be done about needing the Coverage when you outlive the term of the life insurance. Imagine getting part or all your premiums back. This is where Term Life Insurance with return of premium (ROP) plays the trick.
In this blog, we will really dig deep into Term Life Insurance with return of premiums, explaining how it works, its benefits, and whether or not it would be right for you. We will also look at how the policy compares to regular Term Life Insurance and other alternatives in the market. During the process, you’ll understand this kind of life insurance better and even learn how to find Term Life Insurance Quotes Online that fit your pocketbook.
What is Term Life Insurance with a Return of Premium?
Essentially, Term Life Insurance is characterized by the coverage period. Ordinarily, it ranges from 10 up to 30 years of coverage. In case the covered person dies within that period, then the death benefit will be paid out to the beneficiaries. However, if the insured lives through the coverage period, then no money is paid out, and the policy simply runs its term without paying anything.
This is where Term Life Insurance Return of Premiums differs. As the name says, with this kind of policy, there’s an added benefit: in case you outlive the term of your policy, the insurance firm will return all the premiums you’ve paid over the lifetime of the policy. In that sense, it’s almost like getting your money back by the end of your coverage period.
For example, you buy a 20-year Term Life Insurance policy with a return of premium features. You pay premiums over those 20 years. At the end of your term, you’re still living, termed out, so to speak, and no longer need the Coverage. A return of premium policy will pay back to you all your premiums paid over those 20 years tax-free.
How Does Term Life Insurance with a Return of Premium
Work?
Term Life Insurance Plans with return of premium operate identically to the traditional term policy. You select a term size and coverage amount and pay a premium. The one difference is that, in addition to paying for coverage, you are also paying for the return of premium benefits, which raises the cost of the policy slightly.
Here’s a breakdown of how it works:
- Select Your Term: Just like a regular Term Life Insurance policy, you choose the length of time you want the Coverage to last (e.g., 10, 20, or 30 years).
- Pay Premiums: You’ll pay premiums throughout the duration of the policy, which are generally higher than traditional term policies due to the refund feature.
- Outlive the Policy: If you reach the end of the policy’s term without making a death claim, the insurance company will refund the full amount of premiums you’ve paid over the term. This refund is typically tax-free.
- Make a Claim: If you pass away during the term, your beneficiaries receive the full death benefit, just like a traditional term life policy. In this case, the return of the premium feature doesn’t come into play because the death benefit is paid instead.
The return of premium features is very attractive to those who want the peace of mind life insurance gives them but are uncomfortable with the idea of losing all the money they have paid in premiums if they do not make a claim.
The Cost of Term Life Insurance with Return of Premiums
While this does mean you may get your money back, one must note that this does come at a certain price: premiums for Term Life Insurance Return of Premiums are higher than those for traditional term life policies.
In general, the premiums for a return-of-premium policy would be two to three times greater than for a comparable traditional term policy. That is because you are then saddling an insurer with a heavy risk in that they have to return your entire premium if you outlive the policy.
For instance, if a traditional term life policy costs $30 per month, the return of a premium policy for the same term and the same dollar amount of coverage might cost $70 to $90 a month. Higher premiums can make the purchase less attractive to some buyers, while others view the chance of getting a refund on their premiums as an added way to justify the extra expense.
One of the best ways to determine if the price for this style of policy fits your budget is to compare Term Life Insurance Quotes Online. One of the easiest ways to uncover the differences in premiums available between traditional and return of premium policies would, therefore, be through comparison online.
Benefits of Term Life Insurance with a Return of Premium
There are several key benefits to Term Life Insurance, such as the return of premiums that make it an attractive option for many policyholders.
- Guaranteed Premium Refund: The most obvious benefit is the guarantee that you’ll receive all your premiums back if you outlive the policy. For those who want Coverage but don’t want to lose their money if they don’t make a claim, this is a significant advantage.
- Tax-Free Refund: The premiums returned to you at the end of the policy are generally tax-free. This means you’ll get back every dollar you’ve paid, which can act as a form of forced savings for some people.
- Dual Benefit: You’re essentially getting two benefits in one. If you pass away during the term, your beneficiaries get the death benefit. If you outlive the policy, you get your money back. Either way, the policyholder (or their family) doesn’t lose out.
- Peace of Mind: Many people struggle with the idea that they could pay for life insurance for decades and never see any benefit from it if they don’t pass away during the term. Return of premium policies ease this concern by ensuring that, in the end, you either receive coverage or get your premiums back.
Drawbacks of Term Life Insurance with Return of Premium
While there are clear benefits, it’s also important to consider the drawbacks of Term Life Insurance Plans with a return of premium features.
- Higher Premiums: The most obvious downside is the cost. Premiums for return of premium policies are significantly higher than traditional term life policies. For some people, this cost may outweigh the potential benefit of getting their money back.
- No Investment Growth: While you do get your premiums refunded, the money doesn’t grow over time. You’re not earning interest or seeing your refund increase in value, which means the premiums you paid could potentially have been invested elsewhere for a higher return.
- Opportunity Cost: The additional money spent on premiums for a return of premium policy could potentially be used for other financial goals, such as saving for retirement or paying down debt. It’s important to weigh the opportunity cost of paying higher premiums for this type of policy.
Is Term Life Insurance with a Return of Premium Right for You?
Whether or not Term Life Insurance Return of Premiums is a good choice for you really depends on your financial situation, the life goals you want to reach, and the comfort level you have with the cost of the policy.
This type of policy may be ideal if:
- You want life insurance coverage but don’t want to lose all the money you pay in premiums if you outlive the policy.
- You have the budget to afford the higher premiums associated with the return of premium policies.
- You’re looking for a way to protect your family financially while also potentially getting a lump sum of money back in the future.
On the other hand, if you are budget-strained or interested in finding lower premiums, then a traditional Term Life Insurance policy is a better deal.
Alternatives to Term Life Insurance with Return of Premium
If you’re unsure whether the higher premiums for a return of premium policy are worth it, there are other options to consider:
- Traditional Term Life Insurance: The most straightforward alternative is a standard Term Life Insurance policy. This provides the Coverage you need without the added cost of a return of premium features. While you won’t get your premiums back if you outlive the policy, the premiums are much lower, making it a more affordable option.
- Permanent Life Insurance: If you’re looking for lifelong Coverage, you might want to consider a permanent life insurance policy. These policies don’t expire, and they also build cash value over time, which you can access during your lifetime. However, permanent life insurance is significantly more expensive than Term Life Insurance.
- Investing the Difference: Some people choose to buy a traditional Term Life Insurance policy and invest the money they save on premiums. This strategy allows you to build wealth over time while still having the protection of a life insurance policy.
How to Get Term Life Insurance Quotes Online
One of the best ways to explore your options is by getting online Term Life Insurance quotes. Comparison tools will help you easily view the difference that will exist in premiums between the traditional term life and return of premium policies. You can then enter your information, compare rates, and thus choose a policy that best fits your needs and budget.
Compare not just the premium but also the term, coverage, and additional riders that you may include when viewing Term Life Insurance Plans. This will help you decide which policy best values your situation and circumstance.
Final Thoughts
Term Life Insurance with a return of premium is a nice benefit for those who want the security of life insurance but hate to pay for Coverage they may never use. The premiums run higher than traditional term policies, but getting your money back if you outlive the policy is a big selling point.
Before you decide whether or not a return of a premium life insurance policy is right for you, you will want to evaluate your budget, financial goals, and how long you’ll require Coverage.
Compare Term Life Insurance Quotes Online to see just how much a return of premium policy would cost compared to other options. The right information and proper consideration will, therefore, ensure that you get the right policy, which will protect you to your best interests and, for sure, give you peace of mind in knowing your money will not bring you frustration for years to come.