Can you get money back from term life insurance?

A lot of people wonder if there’s a way to get some of their premium payments back if they cancel or outlive their life insurance policy. For regular term life insurance policies, you do not get money back. However, there is another type of term policy that offers refunds — though it comes at a high cost.  

A return of premium term policy refunds your paid premiums if your term policy expires and you’re still alive, though administrative fees and riders are not refunded. Return of premium life insurance is much more expensive than a normal term policy, and most people are better off saving or investing the difference in premiums. But it may be worth looking into if you can’t stomach buying a policy you may never use.

How to get money back on your term life insurance

To get money back at the end of your life insurance policy’s term, you need to purchase return of premium life insurance. You can get this type of coverage by adding on a return of premium rider to your policy during the application process. 

With a return of premium life insurance policy, you’ll get the premiums you paid back at the end of the policy’s term, but fees and additional rider costs aren't always included. The catch —  because the money gets returned to you, life insurance companies raise the price of return of premium policies. Premiums are usually 30% higher than standard term life insurance policies.

Even if you can afford the additional cost, consider the trade-off: You’re paying a lot more for the policy. That money could instead go into an investment vehicle that nets a return rather than gaining no value over decades.

You should talk to a licensed insurance expert or financial advisor about whether a return of premium life insurance policy is right for you. 

Pros of return of premium life insurance

• You get your premiums returned tax-free when the term is up

• It can work as a forced-savings vehicle

Cons of return of premium life insurance

• Return of premium policies cost up to 30% more than traditional term life insurance

• The additional money you spend on premiums doesn’t earn interest

• The money refunded at the end of the policy’s term will likely be worth less due to inflation

Canceling a traditional term life policy

If you already have a traditional term life insurance policy, there is no way to get money back after your policy expires. If you cancel the policy mid-term, you won’t owe any future premiums, but you also forfeit any premium payments you’ve already made.

If you cancel during the policy’s free look period, which can be 10 to 30 days from the date of activation, you’ll receive a refund. Additionally, even if you cancel the policy later, you’ll be refunded any prepaid unused premiums. For example, if you pay your life insurance premium annually in January and cancel the policy in March, you’ll be refunded the unused premiums from April to December.

If, after some time of having a traditional term policy, you decide you want a return of premium policy instead, the same free look period and premium forfeiture apply. You cannot convert your active term life insurance policy into a return of premium policy. After canceling your term life insurance policy, you’ll need to purchase a new policy and add on a return of premium rider.

All riders, including the return of premium rider, must be added onto your policy during the application process. After your policy becomes active, you cannot add on any riders.

→ Read more about how to cancel life insurance

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Canceling a whole life insurance policy

Alternatively, if you have a permanent life insurance policy with a cash value component, you may be able to cancel the policy and get some money back. Whole life insurance has a cash value component that can grow over the life of the policy. However, it can take years, or even decades, for the cash value to grow enough to get money back from it. 

You can use the cash value of a whole life insurance policy in a few ways. For instance, you can take a loan out against it or surrender the policy and collect the money. Keep in mind, whole life insurance is considerably more expensive than term life — five to 15 times — and more confusing due to administrative fees and a complicated payment structure. For this reason, whole life insurance isn’t recommended unless your financial situation necessitates it. 

A financial advisor can help you decide if term or whole life insurance is the best option for your situation. 

→ Read more about whole life insurance

If you outlive your term life insurance policy, you won’t be refunded the premiums you paid to keep your coverage active. To get your premiums refunded, you’ll need to buy return of premium life insurance, which is a lot costlier. Additionally, the money you receive at the end of the policy’s term won’t be worth as much because of inflation. Instead, consider using term life insurance for what it is — a risk management tool — and save or invest the money you would have spent on a return of premium policy.