If you have people in your life that you care about, then you are likely a good candidate for life insurance coverage. That is because the funds that are received from a life insurance policy can be used by the beneficiary (or beneficiaries) to pay off debt, continue paying ongoing bills, and even to make sure that a child or a grandchild will have the money that they need in the future to attend college. Plus, because the receipt of life insurance proceeds is free of income taxation, the beneficiary is able to make use of 100% of the money that is received.
But, while having life insurance coverage can be beneficial, not all policies are identical – and because of that, it could be necessary that you need to either add or modify the policy in order to better fit your specific needs. One of the ways to do so is to add a policy rider to your coverage.
Why “Customizing” Your Life Insurance Coverage is Important
Life insurance riders are defined as “an add-on provision to a basic policy that provides additional benefits to the policyholder.” While the addition of a rider may require an additional amount of premium payment, this is not necessarily always the case.
Just like with any other financial planning that you may do, making your life insurance more personalized can help you to better ensure that it will fit your specific, anticipated needs – now and in the future.
What is a Return of Premium Rider?
As its name suggests, the return of premium rider on a life insurance policy allows the policyholder to recover part – or even all – of the premium that they paid into the plan if they survive the entire stated period of the policy.
The return of premium rider on life insurance has been an option for roughly 20 years. Therefore, if you have owned your life insurance policy for a longer period than that, it is possible that you did not have this rider offered to you upon purchase.
Life insurance policies that do not have a return of premium rider are similar to many other forms of insurance coverage in that, once you have paid in the premium, that cost will not technically be recouped unless or until the time of claim. If, however, you have a return of premium on your life insurance, and you live through to the end of the term, you will have effectively reduced your net cost of the coverage down to zero. (This, however, also means that no death benefit was paid out from the policy).
How Does the Return of Premium Rider Work?
Return of premium riders are frequently an option for those who are buying term life insurance. With term life coverage, the policy will have a set amount of time, or term, that is remains in force (provided that the premium is paid). These time periods will usually be ten years, twenty years, or even thirty years.
Similar to with auto and homeowner’s insurance, a policyholder will oftentimes pay the policy’s premium for many years, but never file a claim for benefits. But, if they add a return of premium rider to a term life insurance policy, there is a chance that they could essentially recover all of their costs. In return for this “gamble” that the insurance company takes on the insured with a return of premium rider, there is usually an additional amount of premium payment that is required.
How Much Does a Return of Premium Rider Cost?
While it is typically required that you pay an additional amount of premium for a return of premium rider, the dollar amount can depend on a number of factors. These include the policy itself, as well as the offering insurance company. It can also be dependent upon the age and/or the health condition of the applicant at the time that the policy is applied for.
Should You Consider Adding a Return of Premium Rider to Your Life Insurance Coverage?
Although it may be enticing to think that you could recoup the cost of your life insurance premium after many years, the return of premium rider may or may not necessarily be worth the added premium cost.
This is particularly the case if the insured dies during the term of the life insurance policy – as in this case, they will have ended up paying more for the same dollar amount of death benefit protection.
In some instances, it may make more sense for an insured to purchase a life insurance policy without the return of premium rider, and then “invest the difference” (i.e., the additional amount of premium that would have been required) into a mutual fund, or even simply place that amount of money into a basic savings account.
That way, regardless of whether or not the insured lives through to the end of the policy’s term, there will still be a “pool” of money that is available to the insured, or to their survivors. This money, in turn, could be used for any need.
How to Find Out More About Life Insurance and the Return of Premium Rider
Choosing which life insurance rider options are right for you can be somewhat confusing. That is why it is important to know just exactly what you are getting for your premium outlay. Working with an independent life insurance brokerage can provide you with the details that you need, in an unbiased manner.
This is because independent insurance agencies have access to many different policies, carriers, and riders – and therefore can provide you with information on the best plan for your specific needs (as well as the best option for your budget). This can also be done in an unbiased manner, as independent insurance entities are not locked into selling just one type of coverage, or just one carrier’s products.
Concerning the life insurance return of premium rider, it is frequently necessary to determine your opportunity cost when considering whether or not to move forward with adding it. In this case, you will need to use a set of key assumptions, such as the amount of the premium payment, as well as the number of years that you will be paying it, to come up with the potential savings amount.
If you would like to know more about whether or not you should consider including the return of premium rider to your term life insurance coverage, please feel free to reach out to us and talk with one of our experts. You can fill out our quote form on this page for more information.
The purchase of any life insurance product can sometimes seem a bit overwhelming. There are so many different variables that you need to consider – including potential additional riders. But when you’re working with an experienced ally on your side, the life insurance buying process can be so much easier. So, contact us today – we’re here to help.
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