The return of premium term life insurance is a simple gimmick that insurance companies are using to play on the concerns of consumers. With rising life expectancy and recent improvements in medical care, the majority of people are outliving their term life insurance policies. A return of life policy will ensure that the consumer receives a payout at the end of the term, if they survive longer than the policy term. The return helps customers feel like they are receiving free life insurance that will pay out at the end of the period. The truth is, customers are paying twice as much for the same coverage and earning no interest on the extra money they are investing toward their eventual payout.
Return of Premium Twice as Expensive
The premiums for a return of premium policy are generally double the premiums for a standard term life insurance policy. The extra money you pay into the policy is the amount that you will receive, in return, once the policy has terminated. You do not receive any additional benefits for the additional cost, and your overall payout will be for the policy amount, not for money you have paid toward the policy. You could receive twice as much coverage for the price of a return of premium policy if you purchased a standard term life policy.
It’s Your Money
When you receive your payout at the end of the policy, you are not earning any extra money. You are simply receiving half of the money you have paid in premiums during your life insurance term. The money you receive back does not cancel or balance the amount of money that you have paid to the insurance company over the period of your insurance coverage. The insurance company simply collects the excess premium and then gives it back to you when your term coverage has ended. If you die while you are covered, your dependents will receive the same coverage amount, regardless of whether your policy is standard or return of premium, so that money is then lost.
Return of Premium Payments Receive no Interest
The real disadvantage of using return of premium insurance policies as savings accounts is that you do not earn interest on the extra money you invest. You pay in twice as much, and you receive half of that investment back again. You would do far better financially to purchase a standard term life insurance policy and save the additional money that would have gone toward a return of policy premium. Over the lifetime of your coverage, your regular savings account would grow faster and earn you a better return than you would ever receive through a return of premium policy. During the time the insurance company has your money, it actually loses value because of inflation. Investing that money into a more high-yield savings account would help it grow even faster.
Buy More Insurance for the Same Price
Compare the amount of insurance you could purchase with a standard term life policy to the amount you could purchase with a return of premium policy. Your standard policy could provide you with almost twice the protection for the same price as a return of premium policy. If you do the math and find you don’t need twice as much coverage, keep the smaller coverage amount an use the excess money to invest for your retirement, or just enjoy life while you are living it.
Jessica Bosari is an insurance industry veteran blogging for TermLifeInsuranceNews.com, a site dedicated to helping consumers make smart decisions when buying term life insurance.
