A return of premium life insurance policy is written as what type of term

If you outlive your life insurance policy, can you get your premiums back? in most cases, the answer is no. however, a return-of-premium life insurance policy is the exception. This life insurance product allows policyholders to collect a refund of the premiums they have paid. This may sound very appealing, but before you buy life insurance, it’s important to understand the pros and cons of return-of-premium life coverage, as well as its alternatives.

life insurance premium return vs. traditional term life insurance

Return-of-premium life insurance, or rop life insurance, is a type of term life insurance policy. Like other term life insurance policies, it is written to cover a specific period of time. the length of this period can vary considerably. for example, it can be five years, 10 years, 20 years, or 30 years. If the insured dies during this time, the insurance company pays the death benefit to the beneficiary under the terms of the policy. at the end of the term, the policy expires. sometimes the insured can renew the coverage or convert it to another type of life insurance policy. however, if no action is taken, coverage ends.

Reading: A return of premium life insurance policy is written as what type of term

During the coverage period, the policyholder must pay the premiums. These premiums are the cost of buying insurance. if there is no claim, that is, if the insured survives the term of the policy, then no death benefit is paid.

Normally, the insurance company keeps the premiums even if no claim is filed. however, return of term life insurance premium is different than regular term life insurance in this regard. if there is no claim, the policyholder can receive a refund of the premiums paid.

How does the return of the life insurance premium work?

Suppose you decide to purchase return-of-premium life insurance. you buy a 20-year policy. for 20 years, you pay your premiums. luckily, you survive. At the end of the term, you may qualify for a refund of premiums paid.

According to the Insurance Information Institute, some return-of-premium policies refund the full amount of the premium, including the base premium and additional premium for return of benefit coverage. however, some only return the extra premium. It’s important to look closely at the terms offered by different life insurance companies.

the advantages of the return of the premiums of life insurance policies

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For a policyholder who spent years paying premiums and received nothing in return, life insurance may seem like a poor investment in hindsight. Of course, that’s how insurance normally works. you have insurance in case something goes wrong, but you hope it never does. Indeed, when most people buy term life insurance coverage, they expect to outlive their policy. they buy coverage anyway because they want to make sure their loved ones are taken care of no matter what.

At the same time, the opportunity to recoup your premiums is an attractive proposition. If the policy provides a 100 percent refund of premiums, you won’t lose any money. And while you’ll have to budget to pay premiums during the coverage period, the return you receive can add to your savings. you can include this in your retirement plans.

the cons of the return of the life insurance premium

At this point, you might be thinking there has to be a catch. If there were no problems, everyone would buy return of premium insurance.

there are some disadvantages, and the main one is the cost.

Regular term life insurance is attractive to many people because of its affordability. Premiums are often very low, and a young and healthy applicant could get a policy worth $250,000 to $500,000 for around $20 a month or less.

The return of the term life insurance premium is more expensive. You may get some or all of that money back, but in the meantime, you’ll have to budget for higher premiums. If you need coverage but can’t afford an expensive policy, this may not be a good option for you.

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This is something to consider carefully. If you can’t afford the high premium payments, you could end up losing your money. the terms of the policy may state that you must keep the policy in force for the entire period to qualify for a return of premium. If the policy is canceled early due to non-payment, you may not be able to get anything back. you will also be without life insurance coverage.

Even if you can afford the higher premium payments, you’re better off investing the difference. Depending on the investment strategy you use, you could receive higher returns this way. On the other hand, if the investment strategy produces poor results, you could lose money.

alternatives to return of premium life coverage

Regular term life insurance is a common alternative to rop life insurance. If you’re looking for an affordable life insurance policy that gives you peace of mind that your family will be well taken care of, term life insurance is a great option.

If you can afford higher premiums, you might also consider permanent life insurance options, including whole life insurance and universal life insurance. Unlike term life insurance, permanent life insurance policies never expire. they also build up a cash value, and the policyholder can access this value in a number of ways, for example by borrowing from the policy. These policies tend to have much higher premiums compared to regular term life insurance policies, but some people find them to be worth it because of the investment aspects in addition to the death benefit.

should you buy return-of-premium life insurance?

Life insurance is a smart investment for many people. however, it can be more difficult to decide on the right type of life insurance policy to meet your needs. Before you buy rop life insurance, ask yourself the following questions:

  • Will you be able to pay the higher premiums for the life of the policy? If you don’t think you’ll be able to keep the policy in force, you may be better off with a less expensive type of term life insurance.
  • Does the policy offer a return of 100 percent of the premiums or only a portion of the premiums? Policy terms vary, and these differences can have a big impact on the value and usefulness of the policy, so it’s important to read the fine print.
  • do you think you could get a better return if you invested the difference in cost elsewhere? Instead of paying for a more expensive life insurance policy, another option is to buy a regular term life insurance policy and then invest some money.
  • Would a permanent life insurance policy better meet your needs? If you’re looking for life insurance options with an investment element, permanent life insurance might be a good fit.
  • Still not sure if you should buy a return of premium life insurance policy? Navigating your life insurance options can be overwhelming, but you don’t have to make these decisions on your own. higginbotham offers a wide range of life insurance products, including term and permanent life insurance policies. we can help you find a policy that meets your specific needs.

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