Identification

• Term life insurance is life insurance offering basic death benefit protection. This type of insurance does not have a cash value savings associated with it. However, some term policies do offer a return of your premium after the term is up. This return-of-premium feature allows you to get a refund of all premiums paid to the policy, in addition to a small amount of interest on those premiums.
  
  

Significance

• The return-of-premium feature increases the premium over the normal term life premium. The excess collected is invested by the insurance company. At the end of the term, you get your term premiums back. The insurance company invests the excess in the insurer's fixed general account. Unlike whole life insurance, you don't get to use this money during the term of the policy.
  
  

Benefit

• The benefit of a return of premium is that you don't waste your premium dollars on term life insurance. With ordinary term life insurance, you must invest outside of the policy in order to offset the cost of the policy. At the end of the term, you're left with nothing. With the return-of-premium feature found on some term policies, you get the benefit of getting your premiums back without the higher cost found on whole life policies.
  
  

Disadvantage

• The premiums for a return of premium term life policy are lower than whole life in many cases, but may not be that much lower. Likewise, the premiums are much higher than an ordinary term policy. If you don't keep the term policy until the end of the end of the term, then you lose all of the term policy refund amount. This could mean that you pay a significant amount of money for your policy, but receive nothing in return, making it worse than an ordinary term policy. This is especially true if you cancel the policy just months prior to the maturity of the term policy.