You buy term life insurance to protect the ones you love from financial hardship if you should die. With most term policies you pay your scheduled premium, and when the term is done, you typically stop making payments and your coverage ends.
What if that life insurance policy refunded all the premiums you paid directly to you if you outlived the term? That’s the premise behind Return of Premium life insurance. Here’s what to know about this coverage.
What Is Return of Premium Life Insurance?
Return of Premium life insurance is a term policy with a level premium period of either 20 or 30 years. At the end of the term, if the death benefit has not been paid and you’ve made your scheduled premium payments, you’ll be refunded the money you’ve paid over the level premium period less any loan you may have taken, and accrued loan interest not paid on the policy.
The return of premiums could be as much as tens of thousands of dollars — and you can use that money however you wish.
What Are the Potential Benefits?
In addition to the protection that the policy affords your loved ones:
- The money you get back from a Return of Premium term policy is generally tax-free.
- You can use the returned premium any way you choose — to help pay off a mortgage, fund college tuition, boost your retirement savings, or something else.
- Over the level premium period, your policy will build cash value and you can borrow against during the initial term period.
- The death benefit of your policy is generally income tax-free.
- If you have one or more additional policies with your insurer, adding this coverage may make you eligible for discounts.
What Else Should You Consider?
To keep the policy from lapsing, you’ll need to make scheduled premium payments for 20 to 30 years.
Also, Return of Premium can be converted to a permanent coverage and premiums at any time—no matter your state of health at the time. Additional riders are also available to customize coverage to your situation.