One of the biggest questions we receive when talking about term life insurance is, what happens if I don’t pass away before the term ends? Do I lose all the money I just paid into the policy?
This is a great question and a concern for many of our potential clients. However, you don’t just have to go the route of purchasing permanent life insurance so you can avoid forfeiting your money to an insurance company and getting no return. In this article, we will explore return of premium life insurance, what it is, how much it costs, who it’s for, and how to get it.
What is Return of Premium Life Insurance?
Return of premium life insurance is a term life insurance policy in which you can recover all or part of the premiums that you paid to the insurance company if you outlive the policy. By comparison, if you outlive a standard term life insurance policy, the insurance company keeps the money you paid in premiums.
Like your death benefit, this is a tax free payment for the amount you paid the insurance company, so you will never lose any money when it comes to life insurance. The fact is, only 2-3% of term life insurance policies actually pay a death benefit. Insurance companies only make money when they don’t have to pay you so that means that they are banking on the fact that you will outlive your policy, surrender it, or let it lapse.
A return of premium policy ensures that you will get the premiums you paid refunded if you don’t end up using the policy. However, this type of policy is not for everyone and it can come at a much higher cost.
How Much Does Return of Premium Life Insurance Cost?
Return of premium life insurance can often be two to three times the cost of a standard term life insurance policy. So what is the reason for this significant price hike?
An insurance company collects premiums from each individual life insurance policy and the uses that money to invest in low risk stocks, mortgages and liquid short-term investments. They use the profit from these investments to pay for any life insurance claims that have to be made. For most policies, they won’t have to pay anything out so they can keep the money as profit. However, with return of premium life insurance, an insurance company will eventually have to pay you something. They will either be paying out a death benefit, or paying you the refunded premiums. As a result, they have to charge you more so they can offset these costs.
Here is an example of a return of premium policy for a healthy 35 year old male with a 30 year term and $500,000 of coverage.
Here is an example of a standard term policy for a healthy 35 year old male with a 30 year term and $500,000 of coverage.
In general, a return of premium life insurance policy is about 2-3x the cost of standard term life insurance but this extra cost can be totally worth it when you get a giant refund at the end of your term policy!
Who Is Return of Premium Life Insurance For?
The reality is that return of premium life insurance is not for everyone. Each and every family has their own unique financial situation that should be catered to with their policy. As stated previously, return of premium life insurance WILL refund your premiums if you outlive your policy. However, this is completely without interest. In 20 to 30 years, there will be further inflation and your money will have less buying power than it does today. So in some senses, you are losing money, just not as much.
An estimated 36% of adults in America have yet to begin saving for retirement, and 26% have no savings set aside for an emergency. The saving rate of earned income for Americans is plummeting with millennials being the worst with an average -2% savings rate – meaning they are living outside of their means and consuming more than they earn.
Return of premium life insurance allows for a forced savings for the future. Generally speaking, it would make more sense to purchase a standard term life insurance policy and then invest the difference in cost in other types of retirement plans. However, many people don’t have the discipline or know-how to make these complex financial decisions. As a result, they can purchase this type of policy and be forced to save money for their retirement without the having to think about it.
Mortgage Protection Insurance
Another way that return of premium policies are purchased is as “mortgage protection insurance.” This type of policy is designed to pay off your mortgage if you pass away during the policy term and refund your money if you don’t. Essentially, it allows families to kill two birds with one stone, protecting them from the financial burden of a mortgage, and saving money for the future. The only issue with this type of policy is that it is only designed to cover your mortgage. All other income and expenses may not be covered with the death benefit and can leave your family without the necessary funds to continue the lifestyle that you have worked so hard to provide them.
How Can I Get Return of Premium Life Insurance?
Get a Free Life Insurance Quote:
It’s best to shop and compare rates from a variety of different carriers. There may be carriers that are far less expensive for your unique situation. Metcalf Financial can help you compare quotes with up to 80+ different carriers.
Complete The Application:
Every return of premium life insurance policy has an application involving various health and lifestyle questions. Often times, these applications can be very difficult to navigate. Luckily, we take care of this part for you with a quick 10 minute phone call!
Complete a Medical Exam:
Life insurance exams are similar to a basic physical. A nurse can come to your home or work, on your schedule, and complete a height/weight check, blood pressure check, urine collection, mouth swab or possibly a blood test. This is at absolutely no cost to you and is paid for entirely by the insurance company.
Wait For The Policy To Be Approved:
After you have completed your medical exam, go back to your life, enjoy yourself. We take care of everything else and keep you updated weekly about the process!
Sign Your Application:
Once your policy has been approved, all you have to do is sign and submit your first premium payment. Here at Metcalf Financial we aren’t in the dark ages like many insurance agencies. All signatures can be taken care of directly from your smartphone!
Is This The Best Option For You?
Not sure if this is the right policy for you?
Don’t fret, No one understands the complexities of life insurance better than your personal shoppers at Metcalf Financial. Another type of policy may be a better choice for your family than return of premium life insurance. Our job is to help guide you to the right life insurance protection at the best possible price. We want you to find a policy that works for your budget and unique situation.
Let us help you protect your family by:
Filling out our instant quoting tool to see your life insurance rates immediately
Or giving us a call at (928) 514-6150
