Return of Premium Life Insurance is a form of Term Life Insurance, in the sense that it lasts for a set time period, the face amount of the policy does not change, and the monthly premiums are level, meaning, they do not change during the term of the policy. Expanding on the definition of “level term”, let’s say that you purchased a 30-year policy and pay, to use a number, $200 a month in premium. Level term means that as long as you pay the premium due on time, the monthly premium amount ($200 in our example) will not change and the coverage, or benefit, amount will not change either.
If you purchased a Return of Premium policy, and you outlive the policy (meaning you are still alive after the term expires) the insurance company will return to you the aggregate amount of premium paid. Again, in our example if you paid $200 a month for, let’s say, 30 years (or 360 periods) you will get back $200 times 360, or $72,000.
Return of Premium policies could be considered an investment, and there are ways to calculate the return you will get on your investment.
There are drawbacks, however, to a Return of Premium policy. One big drawback is that if you stop making premium payments on your Return of Premium policy, you may not get back any of the premiums you paid.
In summary, if you are considering purchasing a Return of Premium policy, or any life insurance policy, for that matter, you need to make sure you understand the terms of the policy you are getting.