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Return of Premium

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Term Life Return of Premium Rider

Can you have life protection and get your premium back

Can you have your cake and eat it too when purchasing term life insurance?  On this surface, the common return of premium rider seems to say yes.  Not too quickly.  There's a cost for the false sense of security that this rider provides.  Let's look at how the return of premium rider really plays out.

We get the question all the time and we're sure it's in the back of a person's mind when considering his/her term life insurance needs.  "If I don't pass away, I just threw away all that money".  This is only human and a good understanding of the risks associated with not getting life insurance usually helps to bring these people around.  That and the nagging feeling that your family is left exposed.  The carriers came up with a rider to address this sense of future regret...the return of premium.

Essentially, with this rider, if you do not trigger benefits, the carrier will return all or some of the premium you paid over the term of the life insurance policy.  This would seem to be the best of both worlds...I have term life insurance protection and if I don't use it, I get my money back.  So what's the catch.  First, the carrier will charge you an additional premium for this option.  It can be quite a bit higher...maybe 1/3 of your core term life protection.  This is just a different twist of the old term life versus whole life comparison where you are paying the carrier extra premium to give you back some semblance of "money back".  Whether its the premium returned with this waiver or the "cash value" slowly (excruciatingly so) accumulating with your whole life policy, it is all a "portion" of the additional premium you are paying to have that piece of mind.  In our view, it's a false sense of security used as a marketing tool to use people's misunderstanding of how insurance really works ("I didn't use the policy, why can't I have my money back") as a way to earn additional revenue.  That's just our opinion but my personal life policy is term life...without the rider. 

Think of it this way, the carrier is taking the additional premium and investing it.   The amount of additional life insurance premium is calculated to allow them a satisfactory return on investing it.  This return should allow them to return the premium in future dollars (worth less than when you are paying the premium now) plus an excess amount (usually profit or margin).  If you trigger the benefit, your core premium pays for this risk as with any other plan.  If you do not trigger the benefit, they return your premium with less costly future dollars after investing it all that time.  In a nutshell, that's how this works.  Your probably better off investing the additional premium yourself and the gains will be your "return of premium".  For those that absolutely feel more comfortable with a return of premium, then by all means.  Just understand that you are paying for it in the end since like anything else in life...there's no free ride with term life insurance and/or the riders that dazzle the market.  In our opinion, you're better applying that additional premium to either your own investment or more core term life insurance coverage which has the lowest cost per dollar of coverage anyway. 








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