“Life insurance with premium return”, what is it? Before we answer this question, let’s have a look at what insurance premium is actually and how is it calculated?
What is Insurance Premium?
Insurance Premium is just a decorative word used for the cost that you pay for the insurance policy. In simple words, the insurance premium is the cost of your insurance policy.
This payment can be monthly, quarterly, bi-annually or annually. Some insurance companies also require you to pay in a lump sum. Insurance companies require a lump sum only when you had your insurance policy canceled for non-payment in the past.
You must pay the premium on time to keep your insurance policy valid. If you fail to pay premiums on time, your insurance policy is canceled automatically.
How is Insurance Premium Calculated?
Well, an insurance premium is not a straight forward fixed payment. It varies due to many factors like your age, personal information, zip code, the type of coverage you want or medical history(in case of health insurance), etc.
Other risk factors (for example, if your job is risky) are also considered while calculating the insurance premium.
Following factors are considered generally while calculating insurance premiums:
Age is the basic factor for insurance premium calculation. The more age you have, the more expensive your premium will be. It’s because, at a younger age, you’re supposed to get less medical services (in case of health insurance). But in the case of auto insurance, premiums can be expensive even at a younger age, because teenage drivers are still building their driving experience.
- Type of Coverage:
Premium’s cost is also affected by the type of coverage you want. The more expensive coverage you want, the more expensive premium will be.
Your personal information is also considered in the premium’s cost calculation. This information may include driving record, medical history, insurance policy’s claims history, marital status, hobbies, and lifestyle, etc.
Life Insurance With Premium Return
Finally here is the answer to your question!
Life Insurance with Premium Return or Return of Premium (ROP) insurance works the same way as traditional term life insurance, the only difference is that all the premiums, that you’ve been paying throughout the policy’s period, are paid back. But this type of life insurance works only for a certain period of time, usually 12 years. This is the best option if you’re interested in savings for the future.
But premiums for this type of life insurance are a little more expensive because your premiums are paid back at the end of your policy. With this type of life insurance, you can designate more than one beneficiaries. If your primary beneficiary dies before, the payment goes to your secondary beneficiary.
Also check out: 6 Common Types of Life Insurance
Benefits of Life Insurance with Premium Return
- You get a full refund at the end of your policy (if the policyholder doesn’t die during the period of the insurance policy).
- Best choice if you want to save money for the future.
- Financial security for your loved one and children.
- Multiple options to pay premiums like monthly, quarterly, biannually or annually.
- The amount you get back is not taxable.
- It’s much more expensive than traditional life insurance.
- You don’t earn any interest on your money.
- You must pay premiums regularly to keep your policy valid and to get cashback.
- If you cancel the policy before it ends, you don’t get any money back. But some companies provide a portion of the premium back feature.
- You don’t pay just the premium, you’ll be paying more than that (depending upon the type of policy you’ve)
Life Insurance with Premium Return is the best choice to save money for the future, but it is much more expensive than traditional life insurance. You get a full refund of your premiums if you outlive your policy, and the amount you get back is not taxable.
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