Term Life Insurance, Return-of-Premium

What it protects against

Financial loss to beneficiaries due to death of the insured.

How it works

Policyowners pay a periodic premium, and insurers pay a stipulated death beneift if the insured dies within the coverage period. These policies work like level-premium term life except that all premiums are returned to the owner at the end of the term, and some premiums may be returned if the owner terminates the policy earlier. Premiums are higher than for traditional term life. Contracts typically cover 15 to 30 years. Prospects who qualify for preferred risk classes will pay lower premiums than those in standard risk classes.

Who needs it

People who need term life insurance but expect to survive through the life of the policy.

Who may not need it

Anyone who may not need life insurance, such as a single person with no dependents. Someone who needs permanent insurance.

When to buy it

Term insurance is most often appropriate for young families that need to protect income while children are young and until retirement income is saved. The younger and healthier an insured is, the less term insurance will cost.

How to pay for it

Periodic premiums.

Terms to Know

Convertible (View Definition Hide Definition)

Term life insurance coverage that can be converted into permanent insurance regardless of an insured's physical condition and without a medical examination. The individual cannot be denied coverage or charged an additional premium for any health problems.

Grace Period (View Definition Hide Definition)

The length of time (usually 31 days) after a premium is due and unpaid during which the policy, including all riders, remains in force. If a premium is paid during the grace period, the premium is considered to have been paid on time. In Universal Life policies, it typically provides for coverage to remain in force for 60 days following the date cash value becomes insufficient to support the payment of monthly insurance costs.

Re-Entry (View Definition Hide Definition)

Re-entry, which is the allowance for level-premium term policyowners to qualify for another level-premium period, generally with new evidence of insurability.

Risk Class (View Definition Hide Definition)

Risk class, in insurance underwriting, is a grouping of insureds with a similar level of risk. Typical underwriting classifications are preferred, standard and substandard, smoking and non-smoking, male and female.