Term life insurance seems to be all the rave these days because it’s the cheapest type of life insurance you can buy and you only pay for what you need but there’s been one big reason why some people are not buying term.
The reason some don’t buy term is because if you would take out a term life insurance policy for say thirty years and after paying in all that time you don’t pass away, the money you paid in is lost forever. Well, now there is a way around this issue and it’s called Return Of Premium Life Insurance.
In this article I going to discuss how it works and a few of the down sides you should be aware of before considering return of premium term life insurance.
How Life Insurance With Return Of Premium Works
Before we go any further let me show you an example of how this works. Let’s say you’re 30 years old and you take out a thirty year term policy with a level premium of $50 a month. If you would add the return of premium rider to your policy at the end of the 30 year term policy you would get back $18,000. The insurance company would pay you back 100% of the premium you paid them.
In a sense you would have been getting 30 years of life insurance for free, assuming that you live that long. However, as good as this all sound you might be thinking there has to be a catch right. Well that brings me to my next point.
The Down Side
A return of premium life insurance policy may not always pay back 100% back to you. In this section I’m going to discuss several reasons you may want to think about before you buy into one of these policies.
- No pay back on extra health issues. In the example I gave above I was giving an example of a healthy 30 year old individual. What if you had diabetes or heart problems? The extra charges you would imply from these medical issues would not be paid back to you.
- No return of premium for extra riders. Any riders you add to the policy as a result will not be paid back to you as well. For example, if you would add a disability rider, which would make your payments for you in the event you became disabled you would not be paid back to you.
- No return on the money you paid in. In a typical life insurance policy with a cash value you would earn a return on the extra money paid in. For example, if you paid $50 a month and earned a 5% return you would have earned an extra $24,000 on your money over a 30 year period by simply having it in a permanent life insurance policy.
Talk To Your Insurance Agent
As you can see term life insurance with return of premium is not it’s all cracked up to be. However, this doesn’t mean I’m discouraging you from these options. The truth is many people don’t know about the down sides to these types of policies and many times are not told by their insurance agent.
If you’re looking for a new life policy make sure you ask your agent to run some return of premium life insurance quotes so you can compare what you will get back after the policy is up. I also encourage you to run a whole life, or variable life policy against the return of premium policy to see the investment performance you might gain with those options. In the end it’s up to you to decide, so choose wisely.