Life insurance can be confusing, and it may be hard to decide between what you need and want in a policy. However, one sure thing about life insurance is its importance in ensuring your family is protected and has financial security. To achieve this, you might opt for life insurance with cash back.
Your quest to find the best insurance policy might have led you through several types of life insurance. So, what type of life insurance will best serve your needs? Before answering this question, it is important to understand the different types of life insurance and how they work.
Before diving into how return-of-premium insurance works, let’s review the different types of life insurance:
As the name suggests, return-of-premium life insurance promises to refund the policyholder if they outlive the policy. It certainly sounds like a tempting option. But before committing to this type of policy, you should learn how it works, review some pros and cons, and ultimately consider whether it is worth it.
Return-of Premium life insurance is a kind of term life insurance policy also known as ROP term life insurance. It refunds the full amount paid during a policy term to the policyholder if they outlive the policy. If the policyholder happens to die during the term of coverage, the beneficiaries will still be paid in full.
Return-of-premium life insurance seems like a great deal. So what’s the catch?
The money-back feature comes with a price — you will have to pay more for this policy than for standard term life insurance. The average 20-year term life insurance policy costs up to $147 a month, while the return-of-premiums life insurance costs up to 30% more.
The features of a return-of-premium life insurance policy vary by the insurance provider. It is essential to consult your financial advisor on a specific policy’s cost details and benefits to determine whether it meets your needs and is within your budget.
Some insurance companies offer cash value over time. This feature allows the policyholder to take a loan against the cash value. However, if the policyholder cannot service the loan, the insurer will pay off the loan and then deduct the funds from the refund amount after the policy expiration. Other insurers don’t offer cash value, and you will only get money back after your death or the end of the policy.
The first factor to consider when comparing life insurance policies is your family dynamic and relationships. The number of dependents you have and how much financial support they will require should influence how much insurance you purchase.
It is also essential to consider your health and age. Return-of-premium life insurance offers policies for 10, 15, or even 30 years. By calculating your yearly payments, you will be able to decide what works best for you.
As mentioned earlier, return-of-premium life insurance is expensive and doesn’t earn interest. Suppose you are running a company that will benefit your family in the long run. In that case, it might be wise to invest the extra money into your business and opt for a less expensive policy.
Now that you understand what return-of-premium life insurance is, its main features, some pros and cons, and the factors to consider when choosing a life insurance plan, you should ask yourself whether it is a worthwhile investment for you. Although the return of money might seem like a great deal, the cons may outweigh the pros in your case.
Before choosing a life insurance policy, it is wise to consult with a certified financial adviser who can review your specific circumstance and compare several options.