Return of premium life insurance is a newly introduced term life insurance policy that provides both death benefit protection and a return of premium insurance feature. Return of premium life Insurance is aimed right at one of the greatest objections to term life: "I am probably not going to die, and my money will have been wasted."

Return of Premium Life Insurance Definition

In most types of term insurance, including homeowners and auto insurance, if you haven’t had a claim under the policy by the time it expires, you get no refund of the premium. Your premium bought the protection that you had but didn’t need, and you’ve received fair value. Some term life insurance consumers have been unhappy at this outcome, so some insurers have created term life with a “return of premium” feature. The premiums for the insurance with this feature are often significantly higher than for policies without it, and they generally require that you keep the policy in force to its term or else you forfeit the return of premium benefit. Some policies will return the base premium but not the extra premium (for the return benefit), and others will return both.

Here's how Return of Premium Term works:

If you keep your policy for the term period, at the end of that time whether 15, 20 or 30 years, the life insurance company that issued the insurance with the return of premium policy, returns the entire premium that you paid for the insurance.

There also is some partial return of premium for policies canceled before the end of the term (depending on the year it's canceled, the longer it's kept, the higher the amount of the return.)


When you buy insurance with a return of premium option, you do not have to waste your money, and you can actually get a pretty good rate of return while doing so.

Unlike regular term policies, Return of Premium term life insurance rewards you for keeping the policy by giving a guaranteed return of your total cumulative premium paid on the policy during the level term period, not including substandard (extra charges for health) and rider charges (extra benefits such as disability coverage), if any, which will be paid to the policy owner at the end of the level term period if the policy is then in force.

Here's an example:

Male, age 35 with the best rate of preferred plus,

$500,000 of 30-year return of premium term life insurance:

Annual premium = $810; Return of Premium after 30 years = $24,300
($810 x 30yr = $24,300)

This return of premium feature can be scheduled to coincide with life events such as retirement, or children going to college. Upon reaching those times, it is a good deal to have a lump sum of cash to draw from tax-free. The life insurance return of premium is considered income tax free, because you aren't receiving back more than you put into the return of premium life policy. The return of premium term life insurance policies feature fully guaranteed level premiums for the first 15, 20 or 30 years.

Finally, many companies that offer these products have another feature built into their return of premium plans. Frequently, they offer you the ability to buy "paid up" life insurance with the lump sum at the end of the term. Going back to the previous example of the 35 year old, the insurance company may offer him $150,000 of death benefit in lieu of taking the return of premium option. This life insurance is in force forever, and will never require any other premiums, or more importantly any new underwriting.