Return of Premium Term Life Insurance

Return of premium term life insurance is a term policy with a rider that refunds the premiums you paid if you outlive the level term period. The contract defines what counts as premium. The death benefit works the same way as standard term. The refund feature is what you are paying extra for. The honest way to evaluate it is to price the same face amount and term without the rider and treat the difference as the cost of the refund.

Schneiderman Insurance Agency quotes return of premium term alongside standard term for California households, and this page covers the comparison we walk through before anyone chooses it.

What exactly is returned, and when?

The contract defines it, and the definition is narrower than most people assume. The refund is usually the base premium for the level term. Riders, policy fees, and any extra premium charged for a health rating are commonly excluded from the amount returned, so a person paying a rated premium gets back less than they paid. The refund is payable at the end of the level term, and only if the policy is still in force with every premium paid. Surrendering early returns a fraction set by a schedule in the policy, and in the early years the schedule often returns nothing at all. Read the schedule before signing, because the return of premium rider is the one part of the policy whose value depends entirely on the fine print.

Is the refund taxable?

Generally not, because it is a return of your own premium rather than a gain, and it does not include interest on those dollars. That is the usual position, and it is worth confirming for your own facts with a CPA. California’s advertising rules for life insurance do not permit a page like this to leave a tax consequence ambiguous. What we can say plainly is that the refund is not an investment return and we do not present it as one.

What does the same term cost without the rider?

Less, and the difference is the number to decide on. Return of premium term costs more than standard term life insurance for the same death benefit, often substantially more. The alternative is to buy standard term and set aside the premium difference yourself. Whether the rider is worth its cost depends on two things. How confident you are of keeping the policy for the full term, since canceling early forfeits most or all of the refund. And what you would otherwise do with the difference. We price both and put them side by side, because the comparison is the whole decision.

What does California law guarantee on this policy?

The same protections as any individual life policy issued or delivered in the state. Incontestability after no more than two years in force, except for nonpayment, under Insurance Code section 10113.5. A grace period of at least 60 days under section 10113.71. No lapse for nonpayment without at least 30 days’ mailed notice to you and to a designee you name under section 10113.72. A free-look period of 10 to 30 days after delivery, 30 days for buyers 60 and older, under sections 10127.9 and 10127.10. For a return of premium policy the lapse-notice designee matters more than usual, because a lapse in year 18 of a 20-year term forfeits a refund that took 18 years to earn.

The Insurance Code sections here are as published by the California Legislative Counsel at the time of writing. They are amended from time to time, and that office publishes the current text.

Who buys return of premium term?

People who want term protection and dislike paying premiums with nothing back. Those who can carry the higher premium comfortably for the whole term without straining the budget. People who are confident they will keep the policy for its full length, since the rider rewards persistence and penalizes early exit. It is a poor fit for anyone who might need to drop or reduce coverage before the term ends.

How do we help with return of premium term?

We price standard term at the same face amount and term first, so the cost of the rider is a known number rather than a feeling. We read the refund definition and the surrender schedule with you. We fill in the lapse-notice designee. If a permanent policy is the real goal, whole life is usually the more direct route than a term policy with a refund attached. The full range sits on the types compared page and our life insurance page.

Every household is different, and this page does not replace a review of your own situation. To start, request a quote below or call 818-322-4744.