Return of Premium Life Insurance Explanation

This is part four in a series of articles explaining the various types of life insurance products. To start at the beginning please click here.

Return of premium term life insurance is a fairly new concept. A return of premium term life insurance policy works exactly like a term life insurance policy with one exception. If you live to the end of the policy term, the insurance company returns your premiums in a lump sum (see my explanation of term life insurance). If you die within the level term period, then the death benefit is paid in full and the premiums are not returned.

Insurance companies developed this product due to the fact that policyholders or potential policyholders did not like the fact that they would pay into a life insurance product for the length of the policy and have nothing to show for it if they lived. Personally, I'd be happy just to still be alive when my term policy ends, but I guess I'm just a glass is half-full kind of guy.

The premiums for a return of premium product are much higher than the comparable regular term product from the same company. This is to pay for the return of premium benefit at the end of the level term period. On the other hand, premiums for a return of premium product are usually less than the comparable whole life product. This is due to the fact that the insurance company only has to insure your life for a fixed period of time and also due to the fact that you only get your premiums returned in full if you persist until the end of the term period. With most whole life products you can access the cash value at any time and if you lapse the policy the cash value that has built up is yours to keep.