Return Premium: Return of Life Investment

2007-03-08 10:33:40

( Financial )



RETURNING WHAT IS YOURS

A return premium is an insurance term that can refer two either of two things. First, a return premium may refer to a part of the payments that are returned to you as the insured in case of cancellation or adjustment of coverage.

The return premium does not equal the total amount of payments you have made, but is less than that to cover the costs the insurance company has incurred, as well as adjustment charges that you have to pay for the changes that were made to your policy.

Return premium also refers to a new insurance package that offers a money-back program in case the policy lapses before any claims can be made. Return premium is a unique feature of term life insurance where the policy is valid only for a given period of time. In case the insured outlives the policy, then the life insurance premium that the insured has paid will be computed and returned.

CUTTING YOUR LOSSES

A return of premium policy came about as a solution to the problems that term life insurance presents. Term life insurance provides coverage for a fixed number of years. Under this arrangement, the insured pays life insurance premiums for a specific period of time. If the insured does not die within the policy’s validity period, the insured forfeits all the payments he has duly made. You pay and then get nothing if you live beyond the insurance period.

Return of premium solves that problem as it presents an arrangement that is beneficial to both the insured and the insurance provider. If you are the insurance provider, you can invest the premiums that you are receiving from your clients. You make the money productive and earn from it until such time that a claim is made or the premiums must be returned.

Ultimately, the return premium program is a commendable innovation. It provides the insured the coverage he needs, but returns the payments if the insurance product was not used.


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