Term is simple. You pay a premium for a period of time (the term) from one to thirty years and if you die during that time the insurance is paid to the person or persons you designate to receive it – called the beneficiary(ies).
Term life insurance usually has the lowest premium in the early years, making it the most affordable life insurance – initially. Term does not build cash value.
It covers you for a specified period of time (usually from 1 to 30 years, you choose). If you purchase a $1,000,000 term life insurance policy for 20-year period and you die in any of those 20 years, your beneficiary receives the million dollars.
If you are still living at the end of the term, your insurance policy is over unless you can renew the policy. When you renew (assuming your policy has that feature) it will renew at a higher price reflecting your now older age. Term insurance has no buildup of cash as with whole life insurance. Some term life insurance policies do offer a return of premium. See section on Return of Premium
We are committed to making it as easy and convenient as possible for you to purchase quality, low-cost term life insurance for you and your family and to helping you make intelligent choices regarding your insurance choices.
Return of premium life insurance is a relatively new type of term life insurance policy that provides both death benefit protection and a return of premium insurance feature. Return of premium life insurance is aimed right at one of the greatest objections to term life: “I am probably not going to die, and my money will have been wasted.”
Here’s how it works: If you keep your policy for the term period, at the end of that time whether 15, 20 or 30 years, the life insurance company that issued the insurance with the return of premium policy, returns the entire premium that you paid for the insurance.
There also is some partial return of premium for policies canceled before the end of the term (depending on the year it’s canceled – the longer it’s kept, the higher the amount of the return).
Unlike regular term policies, return of premium term life insurance rewards you for keeping the policy by giving a guaranteed return of your total cumulative premium paid on the policy during the level term period, not including substandard (extra charges for health) and rider charges (extra benefits such as disability coverage), if any, which will be paid to the policy owner at the end of the level term period if the policy is then in force.
Here’s an example: Male, age 35 with the best rate of preferred plus, $500,000 of 30-year return of premium term life insurance:
Annual premium = $905; Return of Premium after 30 years = $27,150
($905 x 30yr = $27,150)
The life insurance return of premium is considered income tax free, because you aren’t receiving back more than you put into the return of premium life policy. The return of premium term life insurance policies feature fully guaranteed level premiums for the first 15, 20 or 30 years.