Pros and Cons of the Return of Premium Life Insurance
Jeffrey Johnson is a legal writer with a focus on personal injury. He has worked on personal injury and sovereign immunity litigation in addition to experience in family, estate, and criminal law. He earned a J.D. from the University of Baltimore and has worked in legal offices and non-profits in Maryland, Texas, and North Carolina.
He has also earned an MFA in screenwriting from Chapman Univer…
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Written by
Jeffrey Johnson
Insurance Lawyer
Benjamin Carr was a licensed insurance agent in Georgia and has two years’ experience in life, health, property and casualty coverage. He has worked with State Farm and other risk management firms. He is also a strategic writer and editor with a background in branding, marketing, and quality assurance. He has been in military newsrooms — literally on the frontline of journalism.
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Reviewed by
Benji Carr
Former Licensed Life Insurance Agent
UPDATED: Feb 14, 2022
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The Facts of Life
Return of premium life insurance policies will pay back your premiums if you outlive the policy.
Return of premium policies or riders can cost up to five times more than a standard term life insurance policy.
If you stop paying premiums on your policy, or if you cancel your policy early, you may not get any of your money back.
If you are shopping for a life insurance policy, you may find it difficult to understand all of your different options out there. What’s worse, you may cringe at the idea of purchasing something like a term life insurance policy only to live past the end of the term and never see any of the money you invested.
A return of life premium is one way to avoid the situation above. With a return of life premium, you will receive a refund of all of the premiums you paid as the policyholder if you are still living at the end of your policy term. This type of life insurance may sound very appealing to you, but it is important for you to understand the pros and cons of the return of premium life insurance before you make any final decisions.
It is also a good idea for you to shop around for life insurance coverage to find the policy that will work best for you. In doing so, you will be able to avoid paying too much for life insurance or choosing a policy that you find out may not be a good fit.
In fact, you can use our free quote tool above to find and compare life insurance rates from top companies in your area today.
What is return of premium life insurance?
A return of premium life insurance policy is a type of policy that pays back all the premiums you paid if you are still alive when your policy ends.
If you are interested in purchasing a return of premium life insurance policy, you typically have two options. You can purchase a standalone return of premium term life insurance policy, or you can purchase a return of premium rider, which would be added to a standard term policy.
When you purchase a return of premium policy, you typically select a term length — normally anywhere from 10-30 years — for your policy. If you pass away during the term, your beneficiaries will receive the death benefit of your life insurance policy. But if you outlive the policy, you will get back exactly what you paid in premiums without any interest.
The money you get back from a return of premium term life insurance policy is not taxable since it is just a refund of payments you made to the insurance company. With a standard term life insurance policy, you do not get any money back if you outlive the policy. This makes a lot of individuals consider a return of premium policy or rider.
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How much is return of premium life insurance?
While a return of premium life insurance policy sounds like a no-brainer, it does have its downsides. One of the major negative aspects of a return of premium life insurance policy or rider is the cost.
According to financial experts, a return of premium life insurance policy could end up costing policyholders more than five times more than a standard term life insurance policy. This means that an individual who could purchase a $100,000 term life policy for just $145 annually could end up paying more than $700 for the same coverage amount with a return of premium option.
The table below shows the average monthly 20-year term life insurance rates by age, gender, and policy amount.
Average Monthly 20-Year Term Life Insurance Rates by Age, Gender, and Coverage Value
Age and Gender$250,000 Policy Average Monthly Life Insurance Rates$500,000 Policy Average Monthly Life Insurance Rates$750,000 Policy Average Monthly Life Insurance Rates$1 Million Policy Average Monthly Life Insurance Rates$2 Million Policy Average Monthly Life Insurance Rates
20-Year-Old Male$18$29$40$47$86
20-Year-Old Female$15$22$30$35$64
25-Year-Old Male$17$28$39$46$86
25-Year-Old Female$15$22$30$35$65
30-Year-Old Male$18$29$40$47$89
30-Year-Old Female$15$23$31$37$69
35-Year-Old Male$19$31$44$52$99
35-Year-Old Female$17$26$36$43$79
To figure out the average cost for you, based on your age and gender, for a return of premium life insurance policy, you will need to multiply the monthly rates by five. This will give you a good idea of how much more you would be paying for the benefit of getting your premiums back if you outlive the term of your policy.
This is important whether you are purchasing this policy in your 20s or whether you’re looking for a senior return of premium life insurance policy.
What are the pros and cons of a return of premium life insurance policy?
With a return of premium life insurance policy, the main positive is that you will receive the full amount of your premiums if you outlive the policy term. This is especially appealing to someone who purchases a term life insurance policy right out of college or who has a term length that is fairly short.
The major drawback to a return of premium life insurance policy is the cost. Because return of premium life insurance policies are often more than five times as expensive as a standard term life premium, many people decide they would prefer to pay the lower rates at the risk of never seeing a return on their premium payments.
Should I purchase a return of premium life insurance policy?
If the idea of purchasing a term life insurance policy with the potential of never seeing a benefit to your payments makes you sick to your stomach, then a return of premium policy may be great for you. You can expect to pay extremely high coverage rates for the policy, but these rates will be cheaper the younger you are.
There are a lot of life insurance options out there, and you may decide that you are more interested in a permanent life insurance policy that is certain to help your beneficiaries after you’ve passed.
Because some permanent life insurance policies also allow for an accrued cash value, you may have the option of purchasing a policy that offers a death benefit while building up a cash value you can use while you’re still alive if you need to.
Before you make any final decisions on your life insurance coverage, be sure to shop around and compare quotes for different coverage types and from different companies. This is the best way for you to know exactly how much you should have to pay for coverage.
And be sure to use our free quote tool below to find and compare quotes from several life insurance companies near you today.
