Return of Premium Is a Gimmick

Allen asks what Dave's opinion is on return-of-premium life insurance policies.

QUESTION: Allen on Twitter asks what Dave’s opinion is on return-of-premium life insurance policies.

ANSWER: I would never buy a return-of-premium insurance policy of any kind.

Let me tell you what return-of-premium means. It means if you don’t use the policy by the end of the policy, they give you all the premiums that you have paid back. That sounds very nice. It is very nice except that feature is an add-on, and they charge you extra for that return-of-premium feature. That extra charge that they’re charging you gives them the money to return your premium. In other words, whatever you’re paying for that return-of-premium feature extra, if you had invested that much, you could have returned your own premium because you would have had the money. This is what’s known as a gimmick. It’s a way to get you to save money with insurance companies—maybe save money.

Sometimes people even do this with long-term care insurance. They’ve got a return-of-premium feature. All kinds of different policies now are offering a return-of-premium feature. If you don’t use the policy by the end of the policy, they return all the premiums you have paid in to that point, but with what you have paid extra to have that feature, you could’ve returned your own premiums. So don’t fall for stuff like that. Something that sounds too good to be true is.

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