Christian Simmons, writer and researcher for RetireGuide
  • Written by
    Christian Simmons

    Christian Simmons

    Financial Writer

    Christian Simmons is a writer for RetireGuide and a member of the Association for Financial Counseling & Planning Education (AFCPE®). He covers Medicare and important retirement topics. Christian is a former winner of a Florida Society of News Editors journalism contest and has written professionally since 2016.

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  • Edited By
    Michael Santiago
    headshot of Michael Santiago

    Michael Santiago

    Senior Financial Editor

    Michael Santiago, a senior financial editor, joined RetireGuide in 2023. With over 10 years of professional writing and editing experience, he brings a wealth of expertise in creating content for diverse industries, including travel and healthcare. Having traveled to more than 40 countries across five continents and lived in Europe and Asia for several years, Michael's global perspective enriches his work. He combines his strong writing skills, editorial judgment and passion for crafting accurate and engrossing content to enhance the user experience on RetireGuide.

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  • Published: August 2, 2023
  • Updated: October 6, 2023
  • 8 min read time
  • This page features 7 Cited Research Articles
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How to Cite RetireGuide.com's Article

APA Simmons, C. (2023, October 6). Return of Premium Rider for Annuities. RetireGuide.com. Retrieved April 12, 2024, from https://www.retireguide.com/annuities/riders/return-of-premium/

MLA Simmons, Christian. "Return of Premium Rider for Annuities." RetireGuide.com, 6 Oct 2023, https://www.retireguide.com/annuities/riders/return-of-premium/.

Chicago Simmons, Christian. "Return of Premium Rider for Annuities." RetireGuide.com. Last modified October 6, 2023. https://www.retireguide.com/annuities/riders/return-of-premium/.

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Key Principles

RetireGuide’s mission is to provide seniors with resources that will help them reach important financial decisions that affect their retirement. Our goal is to arm our readers with knowledge that will lead to a healthy and financially sound retirement.

We’re dedicated to providing thoroughly researched annuity information that guides you toward making the best possible financial decisions for you and your family.

We partner with Senior Market Sales (SMS), a leader in the insurance industry with over 30 years of experience and a network of 66,000 independently licensed agents across the United States.

Our partnership with SMS (and Insuractive, the company’s consumer-facing branch) allows us to deliver expertly researched and reviewed content at no cost or obligation to all of our visitors. It also gives our visitors the opportunity to take the next step in their financial journey by requesting help from our partner through the phone numbers or forms provided on our website.

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Key Takeaways
  • A return of premium rider gives your chosen beneficiary access to your annuity if you die before the plan is fulfilled.
  • A return of premium rider is a low-risk way to protect your annuity investment and provide for a beneficiary.
  • A return of premium rider comes with fees but may replace the need for a life insurance policy.

What Is a Return of Premium Rider?

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.

Why Consider a Return of Premium Rider for Your Annuity

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.

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How Does a Return of Premium Rider Impact Your Annuity Payments?

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.

Potential Decrease in Payout

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.

Factors That Can Decrease Annuity Payouts
Annuity Type
Fixed annuities guarantee a specific payment amount. Variable annuities let you choose a specific mutual fund portfolio to invest in and the payout will depend on the performance of those funds. Indexed annuities offer a return based on the performance of a specific stock market index over a set time.
Interest Rates
Many annuity payouts fall when interest rates drop.
Market Performance
Some annuity plans include options for investment and therefore will be subject to market fluctuations.
Age or Life Expectancy
If you die before reaching the term of your annuity, you may not fully benefit from your investment.
Riders and Features
Any rider or additional features will affect the baseline terms of your annuity plan.
Fees and Expenses
Many annuity plans are subject to surrender charges and withdrawal fees.

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

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Additional Cost of Rider

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.

Cost Factors of a Return of Premium Rider
Additional Fees
Some annuity providers may charge an annual fee or service charge for a return of premium rider.
Impact on Potential Returns
Riders typically cost a set percentage of the premium. This means that the annual return will drop by a percentage based on the cost. For example, say your annuity has a 6% annual rate of return and a return of premium rider costs 1% of your premium; the rider will now reduce your annual return to 5%.
Long-Term Costs
Any rider can reduce the total return of an annuity. When choosing a return of premium rider, the cost should be measured against the benefit of making your investment available to your beneficiary.

Is a Return of Premium Rider Right for You?

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.

Assessing Your Financial Security

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.

Planning for Your Family's Future

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.

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Frequently Asked Questions About Return of Premium Riders

How does a return of premium rider protect your initial investment?
A return of premium rider is a clause that can be added to your annuity plan for an added cost. It ensures your beneficiaries will continue to receive payments if you die before the term set by the plan has elapsed.
What additional costs should you expect when you add a return of premium rider to your annuity?
All annuities are different and all riders come with certain benefits and costs. Any return of premium rider will increase your payments, but the rates will vary with each plan. For instance, the rider could cost anywhere between 0.15% and 1.75%, depending on the provider.
Are there alternative riders to a return of premium that might suit your needs better?
Riders are a good way to tailor an annuity to your needs. A return of premium riders is not the only option. Speak with an independent financial advisor to better understand which riders are suited to your unique circumstances.

Editor Malori Malone contributed to this article.

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Last Modified: October 6, 2023

7 Cited Research Articles

  1. Lake, R. (2023, March 11). How Does My Annuity Rider Work? Retrieved from https://finance.yahoo.com/news/most-common-annuity-riders-175347537.html
  2. Hicks, C. (2023, June 14). 17 Things You Need To Know About Annuities. Retrieved from https://money.usnews.com/investing/investing-101/articles/things-you-need-to-know-now-about-annuities
  3. Investor.gov. (2023). Annuities. Retrieved from https://www.investor.gov/introduction-investing/investing-basics/investment-products/insurance-products/annuities
  4. Investor.gov. (2023). Variable Annuities. Retrieved from https://www.investor.gov/introduction-investing/investing-basics/investment-products/insurance-products/variable-annuities
  5. Investor.gov. (2020, July 31). Updated Investor Bulletin: Indexed Annuities. Retrieved from https://www.investor.gov/introduction-investing/general-resources/news-alerts/alerts-bulletins/investor-bulletins/updated-13
  6. Pfau, W. (2020, July 30). Variable Annuity Death Benefits. Retrieved from https://www.forbes.com/sites/wadepfau/2020/07/30/variable-annuity-death-benefits/
  7. Safe Annuity Education. (n.d.). Glossary. Retrieved from https://www.safeannuityeducation.org/about-annuities/common-annuity-related-terms/