4 things you might not know about return of premium life insurance – InsuranceNewsNet
iQuanti: Traditional term life insurance offers an inexpensive way to cover your loved ones for a fixed period, usually 10 to 30 years. However, if you survive the policy, the insurer keeps all the premiums you have paid over the years.
This is where life insurance with refund of premiums can come in handy. This is a life insurance policy, often available as an endorsement, which costs more but, if you survive the policy, the insurer will refund all your premiums. Let’s dive deeper into some things you need to know reimbursement of life insurance premiums so you can decide if this is the right type of font for you.
1. Your refunded premiums are not taxed
If you survive your return of premium life insurance policy and your premiums are refunded to you, they are not taxed. This is because your refunded premiums are considered a refund rather than income, which means that life insurance with refund of premiums can be a good investment and benefit you later in life if you outlive the policy.
2. They cost more than traditional term life insurance policies
Return of premium policies have higher premiums than traditional term life insurance, so you’ll need to budget more for your monthly payments. However, these can be worth the cost. Either you will protect your loved ones if you die during the policy period, or you will get all your money back when you survive the policy.
3. You may be able to convert to a permanent life insurance policy
Permanent life insurance policies offer guaranteed lifetime coverage as long as you pay your premiums on time. Plus, they allow you to build cash value. A portion of each premium is paid into your cash value, which then increases tax-deferred at a certain rate depending on the type of permanent policy.
In some cases, you may be able to convert your return of premium life insurance to a permanent life insurance policy. This can be a great option if you decide you still want your life insurance coverage later in life and need an additional investment vehicle. Your premiums may increase to account for your advancing age, but you won’t have to worry about being denied coverage.
4. You can lose your premiums in the event of early termination of the contract
If your policy ends prematurely for non-payment of premiums, you may not be able to recoup those premiums, so it is essential to maintain your premiums for the duration of the policy. Depending on the company and the policy, terminating your policy early for other reasons can cause you to lose your premiums, so be sure to plan to keep your policy for the full term.
The bottom line
Return of premium life insurance costs more than traditional term life insurance, but you’re essentially buying peace of mind with this type of policy. Either you provide financial support to your loved ones if you die during the term of the policy, or you get your money back. As long as you stick to your premiums and don’t cancel early, there’s less risk of loss. Additionally, you may be able to convert your policy to a permanent life insurance policy if you wish to maintain coverage and increase cash value. Be sure to weigh your budget against your life insurance coverage needs before deciding if a premium refund policy is right for you.
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