Understanding Return of Premium Life Insurance

Return of Premium Life Insurance is a combination of Term Life and Whole Life insurance. It’s similar to a Term Life policy in that you pay for coverage for a pre-selected number of years (referred to as a “term”). However, if you outlive the term of the policy, all or a portion of the premium paid can be returned to you. The premiums are higher for life insurance with return of premium than for Term Life policies without a return of premium option, and you can minimize your monthly premium by choosing a longer period of coverage.

The Benefits

Return of Premium Life Insurance is a highly popular option because the funds are reimbursed unconditionally. It is the only policy guaranteed to provide you with a dollar-for-dollar return on what you paid in. It also may be an attractive option if you have other kinds of life insurance and want additional coverage, or if you intend to cash out a whole life policy that you own. The return of premium you receive should be tax-free because you will not receive money beyond the amount that you put in.

Additional Considerations

Under most Return of Premium policy provisions, you may receive partial funding. However, the amount you receive can depend upon the length of time you keep the policy. For example, if you pay into a Return of Premium Life Insurance Policy for only 10 years of a 30-year term the percentage payout could be as little as 9 percent of what you paid in. It is always best to read the fine print to assess the amount you will receive. Return of Premium is a highly popular option because the funds might be reimbursed.

Please Note: Taxes vary by state and you should consult a tax advisor for more information. Articles and other information included on this website are intended for the general interest of our readers and are not intended to express the positions or views of Gerber Life or to provide or constitute legal, financial, health or other advice. Gerber Life makes no claims representations or warranties as to the accuracy, completeness, or appropriateness of this general interest information for your particular circumstances. If you need legal, financial, health or other services, you should contact a duly licensed professional.

Source:
smartmoney.com