What Does Premium Refund Mean?
A premium refund is a clause in some insurance policies that grants the beneficiaries a refund to the total amount of premiums paid to date.
Depending on the contract and type of insurance, it will grant a refund of the premiums you paid if you die before that term runs out or if you voluntarily end your coverage. With this provision, an insurance provider will pay back a portion or all of the policyholder's premiums under certain circumstances.
Premium refunds are not limited to whole life insurance. It is also available for different policies, including travel, health, auto and credit insurance, to name a few. These riders can often make your monthly premiums more expensive for your policy.
Such a feature can help those on the fence about buying insurance or getting more specialized coverages like critical illness and disability. For those concerned about affordability, should you decide you don't need or cannot afford the policy, you can cancel or surrender your policy and access those funds.
This clause is sometimes referred to as a return of premium insurance rider.
Insuranceopedia Explains Premium Refund
The most common type of premium refund occurs when the insurance is purchased for a specific time frame, but the policyholder cancels it before that time is up. If the insurance has gone unused, a refund is issued. Refunds are still possible if some money has been paid through the policy, but it is more difficult to acquire.
To qualify for a premium refund, the policyholder must contact the insurance company to request a cancellation. They will then need to sign a form that the insurer will provide them. In most cases, the insurance company will issue a check for the premium refund amount.
The premium refund is, generally, significantly lower than the premium. Insurance is something you buy and hope you never need. And such a feature can help push those on the fence about getting more specialized coverages like critical illness and disability.
Premium refund also acts as guaranteed savings that simultaneously provides you with income protection if you need to cancel and get the extra premium back, which can provide reassurance to policyholders, particularly those who are risk-averse.