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How to get money back from your insurance.
A lot of people wonder then if there’s a way to get some their premium payments back from their life insurance if they cancel or outlive your policy.
For regular term life policies, the answer is no — but there are other options if you're interested in getting more than protection for your family.
One option is to buy a permanent policy that never expires. As long as you stay current with the premiums on a permanent policy, your beneficiaries will receive the death benefit.
Another option is to purchase a type of term life insurance policy called a return of premium term policy, which essentially gives you a refund, less fees, if your term policy expires and you’re still alive.
Return of premium life insurance is much more expensive than a normal term policy, and if you simply save the difference in premium, you’ll end up with more at the end of the term, but it may be worth looking into if you can’t stomach buying a policy you may never use.
If you’re shopping for term life insurance and want to ensure that you can get money back at end of your term, you can purchase return of premium life insurance. With a return of premium life insurance policy, you’ll usually get the entire premium back at the end of the term, but fees and additional rider costs aren't always included. The catch: because the money gets returned, life insurance companies raise the price of return of premium policies, which are usually 30% higher than standard term life insurance policies.
You should talk to a licensed insurance expert or financial advisor about whether a return of premium life insurance policy is right for you. Even if you can afford the additional cost, consider the trade-off: You’re paying more for your policy, which could instead go into an investment vehicle that nets a return rather than gaining no value over decades.
If you already have a 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 by law. 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 premium from April to December.
Read more about how to cancel life insurance.
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If you have a permanent life insurance policy with a cash value component, the policy will only expire if you stop paying the premiums. But if the cash value has grown enough, 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. Unlike other types of permanent life insurance, whole life insurance has a minimum growth rate so you always receive some cash back.
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. Whole life insurance can be useful if you have complex financial needs that benefit from that cash value. Keep in mind, whole life insurance is considerably more expensive than term life — five to 15 times — and more confusing thanks to fees and guidelines.
Read more about whole life insurance.
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