So if you have a Term Life policy, pay all premiums on time, stay healthy, and make it past the term without passing away… what happens? Do you get anything back?
And, as you get older and might need money for medical reasons, is there any way to use the life insurance money?
Term life insurance is just a policy for a set period. If you outlive it, the contract ends, and you don’t get anything back. Think of it like paying rent—you don’t get that money back either. If you want something that builds value, maybe look at whole life insurance or something like Index Universal Life.
When the level term is up, the premium isn’t fixed anymore, and it’ll increase each year (usually quite a bit right away). You could keep it, but it’s usually not worth it if you’re still healthy.
Some policies have ‘living benefits,’ where you can use part of the payout early if you face certain health issues.
@Zenith
It’s kind of like car or home insurance. If you don’t have an accident or fire, you don’t get the premiums back.
About it not being worth it if you’re healthy—I’d disagree. You could be in top shape and still have an accident. If you’re the main earner and still have family depending on you, it can be smart to keep the coverage going.
@Skyler
True, but beyond the level term, it might be better to look at other options if you’re in good health.
Term life is a lot cheaper than permanent policies, so it frees up money in your budget for savings and investments. You can use that for any medical needs when you’re older, and you’re not borrowing money from an insurance company that you’ll have to pay back.
Plus, you’re likely to see better returns by investing in the market.
@Delaney
How much does tax affect returns when you invest in the market compared to putting it into life insurance? I’d guess the market is still better?
Phoenix said:
@Delaney
How much does tax affect returns when you invest in the market compared to putting it into life insurance? I’d guess the market is still better?
The market’s definitely better. Life insurance isn’t really an investment, though it’s often sold as one. You could probably double what you’d get with life insurance just by investing, even after taxes.
Also, with life insurance, it’s technically not your money. If you want to withdraw it, they’ll make you borrow against it or penalize you for canceling the policy.
No, and ideally, no one in your family will ever need to deal with the insurance company again!
I don’t get a refund from my car insurance if I don’t crash my car.
Insurance is kind of a bet. The insurance company bets you’ll outlive the policy. You’re betting you won’t. So in this case, both sides win—unless you somehow think staying alive is a loss.
Nope, you don’t get anything back. You paid for coverage, and you got it.
You could look into return-of-premium term insurance. It’s more expensive, but you’ll get all your premiums back once the term is up.
Blair said:
You could look into return-of-premium term insurance. It’s more expensive, but you’ll get all your premiums back once the term is up.
I recommend this if you think insurance is just money down the drain. It’s good coverage, and the only real downside is missing out on any potential gains due to inflation.
Blair said:
You could look into return-of-premium term insurance. It’s more expensive, but you’ll get all your premiums back once the term is up.
That’s what I went with for me and my wife. I know we get all the premiums back, and there’s an option to convert it to whole life later if we want.
Some companies offer ‘living benefits’ as part of the policy or as an add-on for a bit extra. This can help with critical, chronic, or terminal illness expenses, like if you’re diagnosed with something serious. It’s a good perk to have.
Toward the end of some term policies, you might have the option to convert it to a permanent one. It’ll have higher premiums, but at least you’ll keep your coverage.
You might want to lower the death benefit to reduce the premiums, though. If you’re looking for coverage that doesn’t run out, permanent insurance is an option. There are different types, and an agent can explain how they work.
Ethos offers a term life policy with a return-of-premiums option.