What is Return of Premium Life Insurance?
Return of premium life insurance is a type of term life insurance, meaning it’s a policy that lasts a set period of time and then expires. Unlike other forms of term life insurance, however, return of premium offers opportunity to receive your money back at the end of the term.
How It Works
- Return of premium life insurance, sometimes referred to as a “rider” or add-on to a standard term life insurance policy, is sold for a set term—usually 10, 20 or 30 years.
- The policyholder makes monthly or annual payments, called “premiums,” to keep the policy in force.
- If the policyholder dies while the policy is in force, a pre-set cash payment called a “death benefit” will be paid out to the beneficiaries named in the policy. The larger the amount of coverage, the more the premiums will cost.
- If the policyholder outlives the term, 100% of the premiums paid over the course of the policy are refunded tax-free to the policyholder at the end of the term.
Average Cost of Return of Premium Life Insurance
Return of premium is a modified version of term life insurance. Because it comes with a “money back guarantee” if you outlive the policy, it’s more expensive than typical term life insurance.
The average cost of return of premium life insurance is usually about 30% higher than basic term life insurance. Here's an example:
|Annual Payment||Monthly Payment|
|$100,000||$155/ year||$13/ mo|
|$250,000||$240/ year||$20/ mo|
|$500,000||$387/ year||$34/ mo|
|$1,000,000||$695/ year||$60/ mo|
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Best Life Insurance Companies for Return of Premium policies
Not all life insurance companies offer return of premium term life policies. Here are some of the best companies that do, with ratings from JD Power, Better Business Bureau, and A.M. Best.
A rider is a modification or addition to a life insurance policy designed to give the policyholder either flexibility or extra coverage to protect against life’s uncertainties. Availability varies by carrier, but here are some common types of riders you may want to explore:
Disability income rider
Provides monthly payments to replace your income if you become disabled or unable to work. This acts the same way as disability insurance, so some shoppers choose to add it as a rider to their life insurance and avoid buying a second policy to protect against disability.
Disability waiver of premium rider
In the event that you become disabled and lose your income as a result, this rider will allow you to skip paying your premiums until you recover without your policy getting cancelled or interrupted.
Acceleration of death benefit rider
In the event you become terminally ill, this acceleration rider will allow you to access part or all of the death benefit cash, and use it to pay for certain expenses like medical care. A terminal prognosis usually means being diagnosed with 12 months to live, but can be 24 months in some states.
Other Types of Term Life Insurance
Most life insurance applications include a medical exam to help the carrier assess your risk of dying during the term of the policy. A no medical exam policy, such as a simplified issue or accelerated underwriting policy, will allow you to skip the medical exam if you qualify.
Mortgage life insurance is intended to pay for your home if you die during the course of the policy. This insurance mirrors the amount you owe on your mortgage, which declines over time. Usually offered at 15 and 30 years, the death benefit declines gradually and expires when you pay off your loan.
A more basic version of term life insurance than return of premium insurance. Level term acts exactly the same way as return of premium life insurance, except it doesn’t return the money you’ve paid in premiums at the end of the term. Premiums are therefore cheaper throughout the policy term.
Other Types of Life Insurance
The other main type of life insurance aside from term life is called permanent life insurance. Permanent life insurance policies last your entire life and include a savings component called cash value that builds over the course of your life. There are a few different kinds of permanent life insurance such as whole life, universal life and variable life which all offer slightly different features. They’re all more expensive than term life insurance for the same coverage amount.