Return of premium life insurance is a type of life insurance that gives you back your premiums at the end of your policy, if you are still alive. However, if you die within the period of your life insurance coverage, your dependents will only collect your death benefit. Return of premium life insurance popular terms of coverage are 20 and 30-years, and below are the pros and cons.
Pros of return of premium life insurance
- It refunds your premiums
Unlike term life insurance, return of premium life insurance allows you to get back all the premiums you have paid into the policy. This is however on the condition that you do not die during the period of the life insurance policy.
- It can be used as a savings scheme
In addition to keeping your money in the bank, your return of premium life insurance can be another savings vehicle for you. This life insurance ensures that your premiums are locked up for the length of your coverage. At the end of your policy, your money is given to you tax-free.
Cons of return of premium life insurance
- It is expensive
The monthly premiums you pay on return of premium life insurance are extremely costly especially when compared to other types of life insurance. Besides, some life insurance companies demand that you buy a minimum coverage of about $100,000 before you can enjoy the benefits of this life insurance. So if you are on a tight budget, return of premium life insurance might not be good for you.
- It does not earn interest
Your return of premium life insurance does not earn interest or build up cash value on your money. Your death benefit is strictly determined by the amount of your monthly premiums.