Life insurance can seem very complicated, especially when you’re trying to understand it on your own. There is something that a lot of people seem to want to know: “Can you get money back from a term life insurance policy?”
Life insurance is an agreement between an insurer and a policyholder where the insurer provides a financial safety net to the policyholder’s beneficiaries in case of the policyholder’s death. In Canada, there are two main types of life insurance: Term Life Insurance and Permanent Life Insurance. Term Life Insurance covers you for a specific period, while Permanent Life Insurance provides coverage for life.
Basics of Term Life Insurance
Think of Term Life Insurance as renting a house: you pay rent (premiums) to live in the house (coverage), but once your lease is up, you leave without any financial return unless you renew the lease. Similarly, with Term Life Insurance, you choose a term (usually 10, 20, or 30 years), and if you survive the term, the policy expires without any financial payout.
Seeking Money Back: Is That Possible?
Now, to the heart of our discussion: getting money back from these policies. Normally, traditional term life insurance does not give back the return of premium if you outlive the policy term. It is much like the analogy of paying rent; the term life payments ensure there is coverage at the time but provide for no financial return at the end of it.
However, the insurance market is dynamic, and products designed to mitigate this concern do exist, such as a ‘Term Insurance with Money Back Policy’.
Term Insurance with Money Back Policy
Try to imagine if, with the earlier analogy, there was a twist. Suppose you rent a special deal from your landlord: you live in that house without causing any damages (i.e., making a claim) to any part of the home; then, a portion of your rent is actually going to be returned to you at the end of the lease period. This is the human essence of “Money Back Life Insurance Policies.”. These policies give temporary coverage from term insurance and an element of whole-life, which allows recovery of all or part of the premiums if the insured lives beyond a specified term period. It is, therefore, more attractive to the pure protection and death benefits seeker.
Understanding the Fine Print
But before one gets all worked up, there are a few important things one must realize. Most times, this comes at a cost that will be reflected in higher policy premiums compared with the basic Term Life Insurance. The theory is, you’re paying an extra premium for the potential refund. Example: Both John and Jane are human and are looking into term life policies.
John chooses a term life policy that is cheap, has lower premiums, and has no money back. Jane took the term insurance with a money-back policy and, therefore, had to pay more in premiums for the eligibility that came with it.
If both outlive their policies, then Jane gets some money back at least, making her overpayments more than worth it. John, on the other hand, has overpaid throughout the years, gaining no return when he outlives the policy..
Is It Worth It?
How much value that peace of mind as a person has will largely be answered by that question, and whether the opportunity to get your money back is worth that while. If you are one to truly appreciate the peace of mind that a potential return of your money may offer and do not mind the higher premiums involved, then a money-back policy may be your pal.
But then remember the opportunity cost: the extra money paid for a money-back policy can be invested elsewhere for a potentially higher return.
For example, Take the case of Rosa, a 35-year-old new hire who has just joined her dream job. Healthy and optimistic, she looks up to a bright future. She doesn’t want to feel like all her efforts made to ensure family security have gone to “waste” in case something happens to her and she outlives the policy. After getting advice from her financial advisor, Rosa decided to go for term insurance with a money-back policy. She sees the higher premiums as sort of a forced savings plan. It really gives her some level of comfort, knowing that she is covered and possibly getting money back if she does not need to claim it.
Final Thoughts
Be it leaning towards traditional term plans of insurance for its no-nonsense coverage or considering hybrid appeal money-back policies; one needs to weigh the cost vis-à-vis benefits and a plan suited to personal financial goals. You can also get tailor-made advice from your consulting financial advisor.
Insurance is all about preparing for the worst; it’s a strategic move that best suits your journey of life. Careful consideration of options justifies not only the interests of your loved ones but also ensures making well-informed decisions relating to your value and financial objectives.
