With a typical term life insurance policy, you pay premiums for the coverage the insurance company provides. At the end of the policy’s term, if you’ve outlived the policy, the money you paid in becomes profit for the insurance company. On average, only 2-3% of term insurance policies pay out. Insurance companies make money when they don’t have to pay out the death benefit, so they’re banking on the odds that you’ll outlive the policy, surrender it, or let it lapse. They invest the premiums you pay to generate more income for the company, which allows them to pay claims and fund their business operations.
A return of premium policy ensures that you get back all or part of the money you paid in premiums as a refund for not using the policy. Accordingly, this type of policy comes with a higher premium payment, since the insurance company has a limited amount of time in which to maximize the profit potential of the premiums you pay.