What are the reasons for getting return of premium life insurance? Why not stick with term life or some form of whole life insurance?

Well, the short answer is that return of premium life insurance provides many of the benefits of both term and whole life insurance, and eliminates some of the downsides of both.

To start with, term life insurance simply insures a person for a defined number of years (the “term”), and pays a set amount of money if that person dies during that time. Term life policies are simple and straightforward. The premiums you pay are set and are generally very affordable.

The problem for many people is that if they live longer than the term, then they get nothing. In that case, it’s difficult to avoid feeling that you were paying for nothing all those years. In essence what you bought was peace of mind, knowing that if something happened to you, your family was protected.

But for many people that’s not good enough. They want a little more in return for all the premiums they paid. So they often turn to whole life policies. These policies, which are sometimes called cash value insurance, come in a variety of forms and offer different benefits. This makes them a little harder to understand. Basically what happens with a whole life policies is that in addition to the life insurance, the policy builds up cash value, similar to an investment. The policy is also renewable for your whole life, so it won’t come to an end like a term life policy will.

However, these policies can be very expensive. And for most people, they aren’t the best option. Wealthy people looking for some tax advantages or people looking for a way to help their heirs pay estate taxes are 2 examples of people who benefit from whole life policies. For most people there are many better investment options available.

This is where Return of Premium Life Insurance comes in. It works just life regular term life insurance, with one important exception. If you pay all your premiums and live longer than the term, then the company will refund all that you have paid. While the premiums are a bit higher, by getting return of premium life insurance you avoid the fear of feeling like you paid for nothing if you don’t die before the term is up.

So why would insurance companies offer this? Because they want to give you an incentive to keep paying your premiums for the 20 or so years of your term policy. What they don’t want is for you to go shopping around for another deal. So for many people, there are some very good reasons for getting return of premium life insurance.