Question: Is the return-of-premium term-life-insurance product as well-established and reliable as a typical term policy? -- A.R.
Answer: Return-of-premium term-life-insurance policies have become increasingly popular recently, accounting for 10% to 15% of new term-life-insurance premiums in 2006. More than 20 insurers offer them, up from a handful five years ago.
Often the feature is offered as a rider on regular level-premium term policies of 15, 20 and 30 years, but it's also available as a base policy. Insurers charge 50% or more above the cost of a regular term policy for the right to get all or most of your premiums back if you don't die before the end of the term. Shorter-term policies are more expensive, says Robert Bland, chairman and CEO of Insure.com, an online insurance broker.
The least expensive $1 million, 30-year-term policy with a return-of-premium rider for a 40-year-old man in California is roughly $2,160 a year, compared with $1,240 for the least-expensive regular term policy. That works out to roughly a 5% return on the extra $920 in premiums, says Glenn Daily, a fee-only insurance planner in New York.
If you let the policy lapse generally in the first five or six years, you may not get any of your premium back, and term rates could have declined in the interim. As for reliability, the policy should be as sound as the insurer offering it. Check with A.M. Best, TheStreet.com ratings (formerly Weiss Safety Ratings) or Fitch Inc. for ratings on insurers.
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