Return of Premium Rider for Annuities

Most standard annuity plans will offer returns while you are alive and will terminate when you die. Like riders for your home insurance policy, a return of premium rider is an add-on to your annuity contract. This type of annuity rider ensures that the provider will return the remaining premium to your chosen recipient if you die before your annuity is fully paid out.

A return of premium rider combines the stable income of an annuity with the provision for others that is common in life insurance policies – which pay out investment after your death. This type of rider offers peace of mind by ensuring any money that you don’t receive during the lifetime of your annuity is passed on to your chosen beneficiary.

Annuities offer a regular income while you are living. When you invest in an annuity, you are setting up a way to receive regular payments for the rest of your life. However, like many investments, annuities are subject to changing interest rates. An annuity calculator is a helpful tool to use when you’re considering whether an annuity plan is right for you.

The amount of money you invest in an annuity is called a premium. Your premium is paid back to you in regular increments according to the terms of your plan. After you die, your annuity contract will close, and any remaining value in the annuity returns to the provider. However, if you opt for a return of premium rider, the remaining amount in the annuity contract will be provided to your chosen beneficiary after you die.

Most return of premium riders will come with a fee, or they will increase the initial lump sum or the amount of regular payments you make into your plan. If you think you will personally benefit from your full annuity payments while you are alive, a return of premium rider may not be for you. If you think you may not receive the full benefit of your annuity plan, a return of premium rider could be beneficial for you and your beneficiary.

There are many factors that influence the payout you will receive from your annuity, including the type of annuity you choose, your life expectancy and any add-ons. For example, adding a return of premium rider to an annuity could affect the regular payouts you receive. It could also lead to additional fees and charges.

Speak with an independent financial advisor about factors that could influence your annuity payouts.

Annuities offer stable income during your lifetime, and riders are a good way to ensure your plan is tailored to your particular needs. But keep in mind that any annuity rider, including a return of premium rider, will affect the fees and cost implications of your plan.

If you’re thinking about adding a return of premium rider to your annuity plan, consider any initial and ongoing costs, your personal financial goals, your time horizon and the type of investment alternatives available to you. You’ll also want to consider your investment style, financial discipline and financial flexibility. If you do not have any beneficiaries, exploring different investments or annuity riders might be a better option than a return of premium rider.

In addition, if you are in good health and have many years on your annuity plan, the additional cost of a return of premium rider may not be the right choice. However, this rider could be a good option if you do not expect to personally receive the full premium invested in your plan.

Once you have spoken with a financial advisor about which baseline annuity plan suits your needs, you can consider certain add-ons, including a return of premium rider. This may provide peace of mind in knowing that if you die before your annuity is fully paid out, any outstanding premiums will return to your beneficiary.

Annuity plans allow for stable income while you are alive. Therefore, if you are in good health, your finances are stable and you don’t have any beneficiaries to support, then a return of premium rider might not be the right choice for you. However, if you are investing in an annuity plan for a long period, a return of premium rider could ensure you and your beneficiary get the entire amount of your agreed plan, even if you do not live out the full term.

While a return of premium rider is likely to increase the cost of your annuity payments and come with fees, it may replace the need for a life insurance policy. Rather than payments ending when you die, a return of premium rider returns the total amount of your remaining annuity plan to your chosen beneficiary. The amount available to your beneficiary will depend on how much you have invested as an initial lump sum or as regular payments in your annuity.

Editor Malori Malone contributed to this article.