Bases For Return of Premium Life Insurance| Template

 What Does Return of Premium Life Insurance Mean?

Do you know that some life insurance policies can even pay you back while you are still living? To majority of people, life insurance is a way to make sure their family would be financially suitable, if something were to happen to them, and they are willing to pay the premium amount to have that safety net in place. Following the facts that life insurance policies has a higher premium cost than term life insurance, one can easily get his premiums* returned to him if the policy period ends and the insured person is still alive.

Return of premium life insurance is a type of insurance policy in which all or a portion of the amount of premiums paid during a life policy period will be returned to the policyholder if claims are not filed, or if the policy duration ends and the insured person is still living. If the amount of claims filed is smaller than the amount of premiums paid, premium can as well be retured.

In traditional term life insurance, return of premium life insurance lasts a certain time length and then the coverage ends. “This is not same with permanent life insurance plans – like whole life and universal life – which provide lifelong coverage. Ask your insurance agent guide on the advantage and disadvanges of term vs. permanent life insurance to determine what’s best for you.”

Unlike traditional term life insurance, return of premium life insurance builds cash value during the policy period. And, if the insured person is still living when the policy period is up, the owner of the policy can get the premiums* paid returned to them.

Rules Governing Return of Premium

The rules preciding over the return of premium is summed up in the maxim” Once the risk has attached, the premium is considered fully earned.” This means that ones the contract is binding the insured is not entiled to any return of premium.

However, the policy condition can modify this position or by an extraordinary legal situation. In practice, some insurers may give sympathetic consideration to make least a partial refund of premium in circumstances where the policy period elapses and the insured person is still living.

Lets look at these legal standing of (ROP)

A situation where the insured has sold his car before the end of the year of insurance that he is not given any return of premium under his motor insurance policy. Usually, the motor policy contains a cancellation condition which would normally deal with this type of situation. But at common law, the insured is not entitled to get any refund.

The common law stand sterm from the fact that each party to the contract has given a consideration the insured has and the premium and the insurers has given an undertaking to make certain payments should defined event happen within the period of insurance. The insurers undertaking is usually predicated on the insured fulfilling all  legal requirements which includes:

Possession of insurable interest, complying with policy conditions and many other ones. The contract is binding on both the insured and the insurer, and as such non is entitled to withdraw part or all of their consideration, except in a condition where the policy states so.

Merit and demerit of return of premium life insurance

Does return of premium life insurance has any merit and demerit?

   The good answer is yes it does! lets look at them one after the other.

Merit of return of premium life insurance

1. Less expensive Return of premium term life insurance costs more than pure term life insurance but is less expensive than univertial life or whole life insurance.

2. Limited-Risk – There exist a minimal risk since you can get your premium returned to you if the policy duration lapses and the insured party is still living.

3. The lump sum can be used to help cover college expenses, supplement retirement income or pay off a remaining mortgage balance, for example.

4. You may be able to borrow from the policy’s cash value, if needed.

5. Your premiums can be returned when the policy period is up, which can bring down the net cost of the policy to $0.

6. You will get your entire investment back instead of paying in and receiving no benefit

Demerit of return of premium life insurance

1. If an return of premium life policy is surrendered early, it may be possible to get some premiums back. Still, many companies offer no premium return when a policy is surrendered within the first few years.

2. Return of premium policies are not used for whole life or permanent life insurance, since those types of life insurance cover a person until they die and a death benefit will have to be paid out

3. Because return of premium policies will make a pay-out regardless of what happens to the insured person, these policies are more expensive than other policies.

4. If you were to buy a traditional term policy and invest the difference, you might end up with more money at the end of the policy period.

Finally

Return of premium policies are not offten used for whole life or permanent life insurance, since those types of life insurance cover a person until they die and a death benefit will have to be paid out.

However, for term life insurance, a person could potentially have life insurance for 10, 20, or even 30 years and never file a claim. For this reason, many life insurers offer return of premium policies so that those policyholders can get a return of all or part of the premiums they paid.

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