Jan 14th, 2021
Return of Premium refers to a policy where you get your money back either in full, or in part if no other insurance benefits are used. Return of premium policies are more expensive than standard policies.
Refer to your specific policy for the details of how your policy works. If you're shopping for a new policy, continue on for details about current offerings...
Return of Premium via Hybrid Policies
In 2021, Hybrid Long-Term Care Insurance plans are the "Gold Standard" for getting your money back. Every policy is different, but many of the popular Long-Term Care Insurance policies include a 100% return-of-premium as a Life Insurance benefit.
If you're not familiar with hybrid long term care insurance, click here to learn more.
Why are Return of Premium Policies so Interesting?
Return of Premium is attractive to many because the thought of getting back your money if little or no Long Term Care services are needed makes sense. You'll need to ask yourself a few questions, however.
If you're curious, you can get a quote that will show your specific costs and benefits here. It takes only ~60 seconds to kick off the process.
Now, let's get more technical...
Surrender Value vs. Life Insurance Benefit?
Surrender Value: What it Means
If you're looking to potentially cancel your life insurance policy, and get a full return of premium, you'll want to look at hybrid policies. Many hybrid long-term care insurance policies offer a 100% surrender value between 1 and 5 years.
As of this writing (1/14/2021) there are options from Lincoln, Securian, and PacLife that provide either immediate 100% surrender value options, or vested (meaning you need to wait) after as little as five years.
Return of Premium as Life Insurance
For many, the "return of premium" is more conceptual, as it can be paid as Life Insurance tax-free to their named beneficiary.
In fact, most plan designs return not only the original premium, but have a death benefit that is higher than the premiums paid.
As an example, a 50-year-old Female in Georgia who pays a single premium of $101,290 will receive a death benefit value of $144,000.24 - a 42.5% increase over premiums paid.
Taxes: Beware of the Pitfalls
All of the mainstream hybrid long-term care plans pay life insurance and long-term care benefits 100% tax-free. Surrendering a policy can actually incur taxes even if you paid in, say, $100,000 and only received $100,000 back at Surrender.
Paying taxes on a surrender of your policy may be confusing. This applies to all things tax-related. It comes down to the fact that, inside your policy, dollars were being generated to help pay premiums for the long-term care insurance coverage.
While you didn't pay a penny, your policy was essentially "charging itself" the fees. If you never surrender your policy there's nothing to be concerned about.
Expect a tax bill if you decide to surrender your policy using its 100% surrender value, if available. If all of this is confusing, don't feel lost.
Not All Hybrid Plans Have Good Surrender Values
Some hybrid plans may have very poor surrender values. Here's an example where a 50-year-old pays $101,290 in premiums and only would get back $46,488 if they surrendered the policy 9 years later at age 59:
This reality underscores the importance of working with someone who has integrity and can show you the pros and the CONS of the policy you're considering! (Request a comparison quote now)
If you're interested in a historical "Traditional" policy (yours or that of a parent) you may find these older definitions from Traditional policies helpful:
There are three incarnations of Return of Premium, and each company selling Long-Term Care Insurance coverage will offer at least one:
Full Return of Premium
- Return of Premium, often referred to as “full return of premium,” will give your beneficiary a death benefit equal to the sum of your LTC premiums paid over time. This is available with several carriers, including Mutual of Omaha, and is the most expensive option you can buy of the three Return of Premium options.
**Example: **In our example case, the premiums for a standard 3/150 for a “Standard” rated 59-year-old were $2,441 and adding the full “Return of Premium” rider made them $7,789. WOW!
Return of Premium Less Claims
- Return of Premium less claims: the sum of your LTC premiums paid are returned less any claims paid. So: you paid in $25,000 but used $15,000 in claims dollars before dying, your beneficiary would receive back $10,000 in premiums.
- More likely, you either don’t use the policy and they get everything back, or you use it and use significantly more than you paid, meaning they get nothing back. The biggest risk with this option is that you pay more for it for many years and then use your benefits to their fullest extent, meaning you paid extra for this but don’t benefit from that extra cost at all.
The problem with this is that if you make a claim, you’ll likely have paid extra for this option for many years to no avail, because you’ll quickly surpass your payments over the lifetime when on a claim.
Graded Return of Premium
- Graded return of premium: the least expensive option available, Graded policies are offered by some like Genworth Financial, and a similar incarnation is available with Mutual of Omaha. With these, which are nominal in cost, your Return of Premium benefit goes away with time. With Genworth’s option, you’ll get a percentage of it back up to age 75, when it drops to zero.
To add this option to your Mutual of Omaha policy is only $37 per year, but after age 65 your benefit goes away and you wouldn’t have return of premium benefits.