How does Return of Premium Term Insurance works? What are the pro's & con's?

Question

How does Return of Premium Term Insurance works? What are the pro's & con's?

Answer 1

Return of premium term rider works by guaranteeing that you get your premiums back at the end of your coverage period if you don't die or less any money borrowed from policy. Advantage, you get a tax free lump sum back and you are covered and get money back unless used,unlike

car insurance and others. Disadvantage, the rider makes your premium cost more. Some say also that the premium you get back hasn't earned any interest during the term.

Answer 2

You pay your premium, the insurance company invests it and makes money off of it, and returns your principal after 20 years.

The biggest con is that 1.  it's WAY more expensive than straight term insurance   2.  you STILL do better buying straight term and investing the difference  3.  once you factor in inflation, at the end of 20 years, it's worth less than at the beginning.

The biggest pro:  It's much easier to sell to people who are bad at math.  And the commisions are higher than straight term.

Answer 3

Example: A 50,000 20 year term policy with a return of premium rider for a monthly premium of $50.00. You pay premiums for 20 years, if you're still alive in 20 years you get a cash refund of all premiums paid, 50 x 12 x 20 = 12,000, so you had free insurance the whole time. You get a portion of your money back beginning in the fifth year, and it just builds year after year, so if you decide you don't want the policy or cannot afford the policy, whatever reason, it doesn't matter, at the end of 20 years you get all your money back. It is like a forced savings account for people who will not save money any other way. Downside is you pay more per month to add this feature to your term policy, but for those who would not invest the difference anyway it is a good concept.