By law, if you cancel a term life insurance policy within 30 days of purchasing it, the company has to refund any money you paid. Additionally, if you pay some of your premiums ahead of schedule and then cancel your policy, the company must refund those early pre-payments.
 |
| Do you get your money back at the end of a term life insurance 2022? |
Many people buy term life insurance because it usually costs less than whole life insurance while offering a higher level of coverage. However, after your term ends and your coverage expires, you may wonder what will happen to the payments you made. Can you get any of that money back? Read on to know more.
Why Term Life Insurance Is More Affordable
One reason term life insurance is generally cheaper than whole life is that most people outlive their terms. People tend to buy term life when they start a family or buy their first home. Generally such people are usually in good health. That makes it less risky for insurance companies to cover them. Another reason companies are able to keep term life premiums low is that premiums are almost never refundable. This usually happens even if you cancel your policy. So in most cases you should not expect to get any money back after your term is over.
Special Exceptions
There are some cases when term life insurance premium is refunded to you. By law, if you cancel a term life insurance policy within 30 days of purchasing it, the company has to refund any money you paid. Additionally, if you pay some of your premiums ahead of schedule and then cancel your policy, the company must refund those early pre-payments. Then again, you can also choose to buy what is known as a return-of-premium rider.
What is a return-of-premium rider?
A rider is an additional benefit to your insurance policy that you can usually add for free or purchase for a one-time fee. If a rider has a fee, it will depend on your individual policy but it's usually not too expensive. A return-of-premium rider should ensure that all your premiums are refunded to you after your term ends. If you cancel your policy before your term is up, this rider also allows you to recover a percentage of the premium you paid. Keep in mind that you are only refunded your regular premium payments, not the actual death benefit of your policy, which can be much higher!
But there’s a catch…
A return-of-premium rider can build your term life insurance into a savings account that will give you a nice nest egg at the end of the term. However, it will increase your monthly premium. A healthy male non-smoker in his thirties will typically pay a premium that can be about 30 percent higher. A man in his forties or fifties with certain health problems may pay premiums that are double the cost of normal term life insurance. Additionally, if you have to pay a one-time rider fee, it is usually not reimbursed at the end of the term. On the bright side, all the premiums you get back are considered refunds, so they're not taxable.
Other Options
Many companies, including TruStage, allow you to convert your term life insurance policy into a whole life insurance policy as you age. This is an option that will allow you to access a portion of the premium paid in your policy as a cash source.
In a whole life insurance policy, a fraction of the money you pay each month is put into a separate account that earns interest over time. This account is known as the "cash value" of your policy. After a certain point, you can borrow money from this account without asking any questions. However, you must repay the money with interest, and failing to do so will reduce the death payment to your loved ones if you die. Depending on how many years you have the policy and your age, you may also have to pay an early withdrawal fee.
If you need to, you can also get the full "cash value" of your whole life policy by canceling, also known as "surrendering." For that you have to pay income tax on the money and you have to pay a "surrender fee" to your insurance company.
Conclusion
If you want to get money back from your term life insurance, you can adapt your policy for this purpose. If and how you choose to do so depends on your situation. You may want to use the return-of-premium rider to build your term life plan into a savings account. On the other hand, you may prefer the lower rates of term life insurance when you are young, then convert to whole life insurance when you are older.
