Return of Premium Life Insurance is a combination of Term Life and Whole Life insurance. It’s similar to a Term Life policy in that you pay for coverage for a pre-selected number of years (referred to as a “term”). However, if you outlive the term of the policy, every cent you paid into the policy will be returned to you – guaranteed. The premiums are higher for life insurance with return of premium than for Term Life policies, and you can minimize your monthly premium by choosing a longer period of coverage.
Return of Premium Life Insurance is a highly popular option because the funds are reimbursed unconditionally. It is the only policy guaranteed to provide you with a dollar-for-dollar return on what you paid in. It also may be an attractive option if you have other kinds of life insurance and want additional coverage, or if you intend to cash out a whole life policy that you own. The return of premium you receive is tax-free because you will not receive money beyond the amount that you put in.
Under most Return of Premium policy provisions, you will receive partial funding if you decide to terminate the policy early. However, the amount you receive under the early cancellation depends upon the length of time you keep the policy. For example, if you pay into a Return of Premium Life Insurance Policy for only 10 years of a 30-year term the percentage payout could be as little as 9 percent of what you paid in. It is always best to read the fine print to assess the early termination clause. Return of Premium is a highly popular option because the funds are reimbursed unconditionally.