Understanding Return of Premium Life Insurance
Return of Premium Life Insurance is like Term Life with a unique addition. Like a Term Life policy, you pay for coverage for a pre-selected number of years (referred to as a “term”). However, if you outlive the policy, all or a portion of the premium paid can be returned to you. The premiums are higher for life insurance with return of premium than for Term Life policies without a return of premium option, and you can minimize your monthly premium by choosing a longer period of coverage.
How Does Return of Premium Life Insurance Work?
If you reach the end of your coverage period without making a claim, the insurance company refunds the full amount of premiums you’ve paid. In many cases, this refund is tax-free, allowing you to collect your lump-sum payout without the added burden of taxes, though this can vary depending on your specific policy and location. This can be particularly helpful if you expect new expenses later in life, like a mortgage, retirement savings or long-term care needs.
The premiums for this type of policy are higher than regular Term Life policies, as you’re essentially paying for both the life insurance coverage and the return of those premiums. Choosing a longer coverage period can help reduce the cost of your monthly premium.
Return of Premium Life Insurance Pros and Cons
Pros:
- Guaranteed Refund: Return of Premium Life Insurance guarantees up to a dollar-for-dollar return on the premiums you've paid if you outlive the term.
- Tax-Free Return: Typically, the amount returned to you is tax-free since it’s only the premiums you initially paid with no extra profit.
- Additional Coverage Option: If you already have a life insurance policy but want to increase your overall protection, Return of Premium Life Insurance can be a smart add-on. It provides extra coverage while giving you the potential to get your money back.
Cons:
- Higher Premiums: Premiums are generally higher than standard Term Life insurance due to the return feature.
- Partial Refund: Depending on how long you keep the policy, you may receive a smaller percentage of the premiums paid. For example, if you only pay for 10 years of a 30-year term, the refund might be as low as 9% of what you paid in.
- Policy Terms: Not all Return of Premium policies will provide a full refund. Always review the terms carefully to understand the exact refund amount.
Is Return of Premium Life Insurance Worth It?
Return of Premium Life Insurance can be a good choice if you're looking for a policy that guarantees a refund of your premiums. However, it’s important to thoroughly research your options and consider the higher premiums and partial refund possibilities. If you value additional coverage and are comfortable with the cost, this type of policy may be right for you. If you're primarily concerned with affordability, a traditional Term Life policy might better suit your needs.
To explore other life insurance options with Gerber Life, contact us or call 1-800-704-2180. Our friendly Customer Service Representatives can help you determine the best options for you.
