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Return of premium life insurance is a type of term life insurance that allows you to collect your premium payments if you outlive your selected term.1 To make this possible, this insurance plan can be more expensive.1 Since this type of benefit is usually only accessible in term life insurance plans, it is sometimes referred to as return of premium term life insurance.1
Read on to find out how return of premium life insurance works and the pros and cons so you can figure out whether this type of plan can meet your needs.
How Does Return of Premium Life Insurance Work?
Like a standard term life insurance plan, you pay regular premium payments to keep a return of premium life insurance policy active. In standard plans, these life insurance premium payments are usually non-refundable and owned by the insurance company.2 However, if you outlive your term in a return of premium life insurance plan, you may be able to recover these payments.
For example, let’s say you buy a 20-year return of premium term life insurance plan. If you pass within the 20-year term, your family will receive the death benefit and the premium payments will be kept by the insurer. However, if you outlive the 20-year term, you will be able to get a refund of your premium payments.
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Pros and Cons of Return of Premium Life Insurance
Pros of Return of Premium Life Insurance
The biggest pro of return of premium life insurance is the ability to reclaim past premium payments. If you outlive your term, you are typically able to receive one lump-sum payment combining all previous premiums that were paid. This may be particularly helpful if there are any new expenditures you’ll have to cover later in life, like a mortgage or retirement plan.
In this respect, return of premium life insurance can function as a savings account with a bonus life insurance add-on. Also, any returns generated from this type of plan generally won't be taxed.3 So, if the time comes, you may be able to receive your lump-sum premium payment tax-free.
Not all insurance companies offer this option, but at Aflac, you may be able to explore a return of premium benefit if it sounds like something worth considering.
Cons of Return of Premium Life Insurance
One of the biggest cons of return of premium life insurance is the cost. For insurance companies to be able to offer this benefit, return of premium life insurance is usually much more expensive than a traditional term route.1 The higher cost may be more comparable to whole life insurance, but that depends on the specific companies and plans you are looking at.
An alternative route may be to purchase a less expensive, traditional term life insurance plan and use the cost difference to invest how you see fit. It depends on how you assess the risk and reward in each type of plan. Chatting with an agent can help clarify your boundaries.
Is Return of Premium Life Insurance Worth It?
A return of premium life insurance policy may be worth it if you can afford to pay a higher premium. However, if you don’t outlive your term, it will have been much more expensive than a traditional term plan, while essentially offering the same death benefit.
It’s important to understand that you aren’t receiving any additional money, but the money that you have previously paid into the policy. There is also a chance you won’t be able to see this benefit come to fruition. You may be better suited for standard term life insurance, where you can save the difference in premium payments for an investment of your choosing.
Consider the pros and cons and other life insurance plans to decide whether return of premium life insurance is right for you.
Get a Quote for Aflac Life Insurance
An important step to consider in the quest for life insurance is gathering life insurance quotes. Talking to an agent about the costs of each type of policy can help you move forward in your journey. Aflac offers term and whole life insurance plans, made with your needs in mind. Aflac does not offer return of premium life insurance, but we recommend learning more about our term and whole life insurance plans if you have different coverage goals in mind. Chatting with an agent about your options may make this decision easier.
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Disclaimer
1 Investopedia. The 5 Best Return of Premium Life Insurance of 2021. Updated February 17, 2023. https://www.investopedia.com/best-return-of-premium-life-insurance-5074165. Accessed February16, 2024.
2 Allstate. What are insurance premiums, deductibles and limits? Updated August 2023. https://www.allstate.com/resources/what-are-premiums-limits-deductibles. Accessed February28, 2024.
3 Investopedia. Understanding Taxes on Life Insurance Premiums. Updated September 18, 2023. https://www.investopedia.com/articles/personal-finance/090215/understanding-taxes-life-insurance-premiums.asp. Accessed February 16, 2024.
Content within this article is provided for general informational purposes and is not provided as tax, legal, health, or financial advice for any person or for any specific situation. Employers, employees, and other individuals should contact their own advisers about their situations. For complete details, including availability and costs of Aflac insurance, please contact your local Aflac agent.
This is a brief product overview only. Coverage may not be available in all states. Benefits/premium rates may vary based on plan selected. Optional riders may be available at an additional cost. Plans and riders may also contain a waiting period. Refer to the exact plans and riders for benefit details, definitions, limitations and exclusions. For availability and costs, please contact your local Aflac agent/producer.
Life
(A65000 Series) - In Virginia, Policies ICC0965JTO & ICC0965JWO. B61000 Series) - In Arkansas, Idaho, Oklahoma, Oregon, Pennsylvania, Texas, & Virginia, Policies: ICC18B61JWO & ICC18B61JTO. In Delaware, Policies B61JWO, B61JTO. (A68000 Series) - In Arkansas, Idaho, Oklahoma, Oregon, Pennsylvania, Texas, & Virginia, Policies: ICC1368100, ICC1368200, ICC1368300, ICC1368400. In Delaware, Policies A68100-A68400. In New York, NY68100-NY68400. Term and Whole Life (B60000 Series) - In Arkansas, Idaho, Oklahoma, Pennsylvania, Texas, & Virginia, Policies: ICC18B60C10, ICC18B60100, ICC18B60200, ICC18B60300, & ICC18B60400. Group Whole Life (Q60000 Series) - In Arkansas, Delaware & Oregon, Policy Q60100M. In Idaho Policy Q60100MID. In Oklahoma, Policy Q60100MOK. In Texas, Policy Q60100MTX. Group Term Life (Q60000 Series) - In Delaware, Policies Q60200M. In Arkansas, Idaho, Oklahoma, Oregon & Texas, Policies ICC18Q60200M, ICC18Q60300C, ICC18Q60400C.
Coverage is underwritten by American Family Life Assurance Company of Columbus. In New York, coverage is underwritten by American Family Life Assurance Company of New York.
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