When You Don’t Die…
So what happens to your Term Life Insurance, if you don’t die? Firstly, it’s important to note that there are different types of Term policies:
Traditional or Level Term Life Insurance– A traditional term policy pays the same benefit amount if death occurs at any point during the term.
Term Life with Return of Premium–Return of Premium (ROP) is a type of life insurance policy that returns the premiums paid for coverage if the insured party survives the policy’s term, or includes a portion of the premiums paid to the beneficiary upon the death of the insured.
Most Level or Traditional Term Life Insurance policies last for just a set period, usually from 10-20 years. Depending on which type of Term Life you have, you may be able to extend it at five-year increments. Sometimes it’s another 10 or 20 years. So you need to know what your choices are at the end of the initial term period. Naturally, it’s going to get a lot more expensive. So let’s say you got the policy years ago when it was cheaper. For instance, if it was originally $850 per year, it could easily go up to $10,000 a year!
That is not an extreme situation at the end of a 30-year term. So it’s important to look at the payment schedule before you decide your plan.
If you don’t die before your traditional policy ends, what happens?
When your traditional or level term policy ends, if you do not die and you outlive that term, it simply ends without you receiving any money back. So now you have to go out and get re-insured probably with whole life because now you’re probably going to be too old to get a term. At that point, it’s going to be too expensive to get a comparable term policy. Your best bet is to go out and get a $10,000 to a $40,000 Whole Life policy because that policy never expires. They’re great for later in life or around 60 years old.
However, if you choose a Term Policy with a Return of Premium you get all of your money back, at the end of the term. You don’t recoup the total policy coverage amount but every penny that you’ve paid into the policy comes back to you if you don’t die,
Typically, a Return of Premium Term policy is always going to cost more than a Traditional Term because they’re adding that extra value in there. It may sound counter-intuitive because it’s going to cost more for a shorter term and cost less for a longer-term with the Return of Premium. So you may want to look at a 30-year Return of Premium Term. The last thing to bear in mind with this kind of term policy is that not only is it going to cost more, and you’re going to want that longer-term to get that price down but you have to be younger to get it. Now the small number of companies that even offer this program requires you to be 50 or younger.
There are some options for 60 or younger but they are more expensive. So 50 years or younger is the sweet spot. Well, if you’re in your 50s, don’t fret, schedule some time to sit down with an agent that has access to a lot of options. Needless to say, a lot of people look at what the price difference is between the return of premium cost and the traditional term cost. Usually, they go for a traditional term policy because the return of the premium policy can be twice as much.
Many clients enjoy the Return of Premium benefits because they know that as long as they continue their policy to the end, they’re going to get all their money back. So they have that money to look forward to at the end. In the meantime, if the money is needed after they pass, it will be there for their beneficiaries.
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