19
Oct-21
A return of premium rider provides for a refund of the premiums paid on a term life insurance policy if the policyholder doesn't die during the stated term. This effectively reduces the policyholder's net cost to zero. A policy with a return of premium provision is also referred to as return of premium life insurance.
How Term Life Insurance and Return of Premium Riders Work
As the name implies, term life insurance provides coverage for a specified term, such as 10, 20, or 30 years. If you die during the term of your coverage, the death benefit goes to the beneficiary or beneficiaries you've designated in the policy. If you outlive the term of the policy, your coverage simply ends.1 One advantage of term life insurance over permanent life insurance is that it is less expensive.
When you buy a return of premium rider or return of premium life insurance, the insurance company will refund the premiums you've paid if you outlive the term. But this flexibility comes at an extra cost. So is it worth it?
When is a return of premium rider a good idea?
If you have an accidental death benefit, and expect to reach the policy's expiry date, the rider may give you an added benefit. If you want to discontinue the policy before it expires, the rider may also help.
What may be a reason to not invest in one?
They are expensive! The premiums are more costly than a traditional term policy or a term policy.
The Bottom Line
Whether or not to purchase a return of premium rider or return of premium life insurance policy will depend on your risk tolerance and individual tax situation. For policyholders who can invest in tax-deferred or tax-free accounts and are comfortable with the ups and downs of the stock market, a basic term policy without the rider probably makes more sense. Risk-averse policy owners, however, may find the return of income rider with its guaranteed rate of return more appealing.
source: https://www.investopedia.com/articles/pf/08/return-of-premium.asp