Life Insurance

What Is A Return Of Premium Rider?

May 23, 2019
Brother and sister in pajamas waking up
While researching the ins-and-outs of all things life insurance, you may have stumbled on the phrase “return of premium rider.” In the life insurance world, a “rider” is any added benefit that is tacked on to a policy. Essentially, a return of premium rider is just a life insurance policy supplement that would return the premiums that you paid on that policy if you outlive the term of your policy. Think of it as a sort of refund on your life insurance premiums. There are benefits to having this option, but whether or not it’s right for you depends upon your situation. Find out the pros and cons of adding this rider to your life insurance policy below.

Who Should Consider A Return Of Premium Rider?

That all depends. As an example, let’s say that you were to purchase a 10-year term life insurance policy for around $50 per month and then outlive the term of the policy. With a return of premium rider in force, you would receive around $6,000 in premiums paid back to you (tax-free!). Should you decide that you still want life insurance, this lump sum could be applied to a new policy. The only caveat is that the additional fees (the additional cost of having a return of premium rider) associated with a return of premium rider are not refunded. Should you consider this type of policy supplement, check the specifics of your policy. It should indicate the exact amount that would be returned if you survive the policy.

Generally speaking, if you are still relatively young and healthy, it may be a good idea for you to consider this type of rider. Instead of feeling as though you were losing money throughout your policy by paying an additional fee for the rider, this add-on ensures that you’ll receive some of your money back when your policy expires. This is great, but keep in mind that this will raise the price of your life insurance premium (typically, around 30% more), so, be sure that it’s right for you and your budget.

How Does This Rider Work?

Think of a return of premium rider as insurance on your insurance. Of course, having life insurance is important for the financial security of your family. On the other hand, what if you paid for life insurance that you ended up not needing in the end? With a return of premium rider, you’re guaranteed to receive your money back as a refund—not a bad deal. However, don’t forget that this money won’t be returned to you until your policy expires.

What Else Should I Know?

If there is any chance that you may not outlive your term life insurance, then you probably won’t benefit from this rider. In this case, rather than paying a higher premium for this type of coverage, consider other options such as investing the difference to ensure your beneficiaries will be financially secure. Don’t forget about that extra 30% for a return of premium rider, so, make sure you have all the facts before making your decision.

Even if a return of premium rider doesn’t make sense for you, you can still benefit from a regular term policy. It’s an affordable way to protect the financial stability of your loved ones—no matter what life throws your way. You can get a quote from Ethos and apply online. One of our agents will help you find the policy that works best for you and your budget.