How Does Return of Premium Life Insurance Work?
Is Cash Back Life Insurance Better Than a Standard Term Policy?
Nov 4, 2009
Many consumers opt for a term life insurance policy over a permanent whole life option. This is often based on the fact that premiums are cheaper and they don't feel that the costs of permanent life coverage are worth it. But, this could see them pay to get peace of mind and no financial rewards once their policy ends. Can return of premium term life insurance offer a viable alternative?
What is the Difference Between Term Insurance and Return of Premium Policies?
Generally, these policies will share basic features. Both will be based on a specific term of time during which the policyholder will be protected with life benefits. Once the insurance comes to an end, coverage ends with it. But, there is one major difference between the two.
Basic term life insurance suits many consumers because it is often the cheapest option. The insurer only pays out any money if the policyholder dies within the term which is why the sector can keep costs low. If the individual survives then they get nothing, even though they may have paid regular premiums for years.
Return of premium policies may work on the same basic principles but they come with one major difference. This kind of coverage will make a payment to the policyholder once their insurance is finished by giving them back all of the premiums that they have paid. This payment is made even if they survive their term.
Why Consider Return of Premium Insurance?
The obvious answer here is the premium repayment element of this kind of policy. Taking out standard term insurance will give life coverage in the event of death but no other financial return. Return of premium options give life coverage and the guarantee of some money at the end of the policy. This makes them a viable alternative to both term and whole life solutions for some consumers.
The primary disadvantage to return of premium insurance is cost. Premiums will generally be charged at higher rates than those given for a regular term policy. But, given that the consumer will get this money back later in life and would see no return on investment with a cheaper standard term policy at all, then this may well not be so much of a problem.
Consumers considering this kind of cash back option should select a policy just as carefully as they would any other. They may, for example, want to make sure that they take out the right amount of coverage and that they check terms and conditions carefully to make sure there are no negatives that might catch them out later. It may also be worthwhile considering ways to save money on life insurance costs before applying for quotes.
Source: www.bankrate.com
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