Many life insurance agents may try to encourage clients into getting life insurance with return of premium. However, premium returns may not always be an option. It may not cost much to add this rider if you are in your 20’s or 30’s and healthy. However, the rider may become more expensive the older you are. For this reason, it may be valuable to know what return of premium term life insurance is. To find out more about life insurance riders, visit the article “What are Life Insurance Riders?”
The benefit over plain vanilla term life insurance could be that if you outlive the term, all of your premiums may be returned to you rather than receiving nothing back. Let’s discover if adding the return of premium may be right for you. To begin, it could be important to become familiar with what return of premium term life insurance is. The following is a scenario that may help to clarify. Client B holds a return of premium policy while Client A does not.
The following is an entirely hypothetical situation:
Client A is 40 years old and received a quote for a 30 year term life insurance policy without the return of premium option and added on a half million dollars’ worth of coverage. It could cost him something like $633.00 every year. If client A does not pass and allows his policy to lapse, he may have paid a figure like $18,990.00, which he generally cannot recoup.
Client B is 40 years old and received a quote for a 30 year term life insurance policy and added the return of premium to his policy. In the event that he lives the entire 30 years, he may have the potential to receive 100% of his premium back. He may be paying something closer to $1,285.00 every year as opposed to the $633.00 that client A is, but when the 30 years is over Client B could get $49,536.00
Loans and Cash Value:
Level term products generally have no cash values, but some return of premium policies typically do. If there is a gap in coverage, it may be possible to collect some money depending on how long the policy has been active. On a typical 30 year policy, the cash values may not begin to accumulate until the 5th year and may start off very low; at less than 1% of the premium paid. Every year after, the percentage could increase. In the tenth year, if the policy is allowed to lapse, 10% of the premiums paid may be returned, year 15, 20%; year 20, 35% and so forth until year 30, when it may be possible to receive 100% back.
It may also be possible to take out a loan from the cash value. On a typical 30 year policy, the premiums may be reimbursed for the remaining years beginning at year 17. It may be important to understand, the loan may accrue interest, and at the end of the term in year 30, a substantially less amount than 100% of the premium that was paid may be received