Living a long and eventful life in the presence of family and friends is one of the biggest blessings. Investing in financial instruments helps in achieving income security and creating wealth for the future lifetime goals. Keeping one’s family secure of unfortunate events is a top priority for every individual. Buying an adequate life insurance is the ideal solution for these objectives. A term plan with return of premium (TROP) is a term insurance plan variant, that is specifically designed to cater to the requirements of the insurance buyers, as well as offer the benefit of return of premium as a survival benefit to the insured individual, in case they survive the tenure of the policy plan. In this plan, you can avail all the benefits of a simple term insurance plan, along with the income replacement and premium refund at the time of maturity.
What is Term Plan with Return of Premium?
Term plan with return of premium is a type of term insurance that caters to the requirements of the insured individuals like a standard term insurance plan, by also providing financial protection to the family of the insured individual against any unfortunate events. Just like any standard term insurance plan, the term insurance with return of premium plan offers death benefits, and along with that it offers a guaranteed return of premium as a maturity benefit, in case of the insured person being healthy and hearty at the time of the end of policy tenure. Because of the guaranteed return of the premiums, the term plan with return of premium has a higher rate of premium. This type of term plan also provides additional benefits such as accidental death benefit, premium waiver benefit, protection against critical illness, as well as disability benefit. Hence, a term insurance with return of premium is a term insurance plan that provides both death benefit, in case of the death of the insured individual, as well as maturity benefit by the return of premium invested, if the individual survives the policy tenure.
Why Should You Choose A Term Plan with Return of Premium Option?
Choosing the right term plan provides financial protection and security to the family of the insured policyholder in the long run. Here are some of the reasons why you should consider purchasing a suitable term plan with return of premium:
- Maturity Benefit in the Form of Refund: In a term plan with return of premium, the premium refund is offered at the time of maturity, if the policyholder survives the tenure. In this way, the policyholder doesn’t lose the amount of premium paid over the years. This plan provides a lucrative deal to the policyholders who are seeking insurance covers that offer money back. This plan provides the best deal for the policy buyer by offering the combined benefits of a large cover term plan as well as the aspects of saving like a traditional endowment plan.
- Guaranteed Return of Premiums: With a return of premium term plan, the policyholders do not have to worry about the return of their money, as it is assured under this policy plan. This policy plan provides guaranteed returns on the total amount of premium paid, excluding the additional amount of premium paid for the add-ons and riders, if any.
- Options in Premium Payment: The term plan with return of premium provides a variety of life insurance premium payment options to the policy buyer. These options range from monthly to yearly options, and allows the buyer to choose from the available options, as per their suitability.
- Paid-up Option for Non-earning Investors: For individuals who are not earning and do not have a fixed income, the term insurance with return of premium provides a ‘paid-up’ option, which is a feature that helps these policyholders at the times of their default payment of premium.
- Gain Tax Benefits: As per the tax regulations, the Income Tax Act allows a total deduction of up to Rs. 1.5 lakhs, if the amount invested is in the right channel. Tax benefits are as per the Income Tax Act, 1961, and are subject to any amendments made thereto from time to time.
- Gain Rider Benefits: Term insurance with return of premium plans offer rider benefits that enhance the policy coverage of the insured policyholder. Most of the insurance companies offer a wide range of riders along with the term plan, and the policy buyers can choose and purchase them according to their suitability, at the time of signing up for the policy or get them added later on.
How Does Term Plan with Return of Premium Insurance Work?
A term plan with return of premium is a non-participating insurance plan that has its own notable benefits over the standard term plan. Consider a policy with the cover of Rs. 50 lakhsfor 10-year period, with the yearly premium of 5000. In case of the death of the insured policyholder, the family of the individual will receive the sum assured, i.e. Rs. 50 lakhs. Moreover, in case of the insured policyholder surviving the term period, he/she will receive the entire premium amount, i.e. Rs. 50,000 (5000x10), paid as a refund or maturity benefit. In order to avail the benefits of the plan, firstly the policy buyer needs to choose a protection plan of their choice, requirements, and suitability. You can either choose a lump sum protection plan or an income protection plan. In the lump sum protection plan, the nominee receives a single pay-out amount as the death benefit, while in the income protection plan, the nominee will receive a monthly income for the chosen pay-out period as the death benefit.
Features of Return of Premium Term Plan
Here are some of the top features of the return of premium term plan, that shows how the plan works and what it incorporates:
- Offers Low Sum Assured:The sum assured in a term plan with return of premium insurance is a life insurance plan that offers coverage to the insured when they sign up for the plan. This plan offers a low sum assured amount, as the premium paid is refunded.
- Provides Death Benefit: This plan offers death benefit as the total sum assured amount paid to the nominee of the plan, in case of the death of the policyholder. The amount of sum assured varies as per different insurance providers, as well as the coverage selected.
- Provides Survival or Maturity Benefits: It is due to the survival or maturity benefits that the term plan with return of premium differs from the other standardised term plan. Under a standard term plan, the insured policyholder does not receive any maturity benefits or survival benefits, but in a TROP plan, they receive all the money paid as premium back if the policyholder survives the policy plan tenure.
- Provides Paid-Up Value Benefit: The paid-up value benefit is an additional benefit provided under the term plan with return of premium insurance. Under this, if the policyholder is unable to pay the premium, the plan continues at a lower coverage. This benefit is usually beneficial for the non-earning policyholders of the TROP plan. Most insurance providers require the policyholder to pay the premium amount for a certain minimum number of years before they offer this benefit.
- Surrender Value: The surrender value of this plan varies depending on the payment option selected. The surrender value is generally more for a single premium plan wherein the entire policy premium is paid at the beginning of the policy period. Different insurance providers follow different methods of calculating the surrender value.
- Rider Benefits: Insurance providers offer riders for additional benefits, that generally include hospital cash coverage, critical illness rider, and personal accident or disability rider, that provide coverage additional to the principal cover.
Who can Avail Term Plan with Return of Premium?
The minimum entry age for a term plan with return of premium is 21 years, while the maximum age is 55 years. Apart from other factors, the premium rate of the policy is determined by the policy buyer’s age. Following are the criteria for buying the term plan with return of premium and avail the benefits:
- If you are single: Every individual, whether single or married, needs financial protection and security. The term plan with return of premium will allow you to not only secure the financial future of your loved ones and parents, but also create scope for financial protection and benefits in the long run.
- If you are married and have no kids: In such a case, youwould be the only person that your spouse could look up to, in case of financial emergency and support. It becomes highly important for you to create a financial backup in order to secure his/her future even in your absence. In case you survive the entire tenure of the policy plan, the complete premium amount will be returned back as maturity or survival benefit.
- If you are married and have kids: It becomes a primary responsibility of an individual to secure the future of their children, whether they are present in it or not. The term plan with return of premium ensures that your family and children are financially secure and protected in case of any liabilities in the future.
Term Plan with Return of Premium Vs Term Insurance Plan
|Term Plan with Return of Premium||Standard Term Insurance Plan|
|This plan is a variant of term insurance plan||This plan is the simplest form of life insurance.|
|Premium charged by this plan is comparatively higher than the standard term plan.||The rate of premium of traditional term plan is affordable.|
|It offers death benefit in case of the death of the insured, and otherwise offers maturity benefit in terms of refund of premium.||This insurance plan offers coverage for only death benefit.|
|The amount of sum assured in this plan is comparatively lower.||The amount of sum assured in this plan is 10 times the annual rate of premium.|
|This plan is best suited for individuals who don’t mind gaining some amount of returns along with the benefit of insurance coverage.||This plan is best suited for individuals who want to provide financial protection to their family, without gaining any other returns or benefits.|
|Offers tax exemption under Section 80C of the Income Tax Act.||This plan also offers tax exemption benefit under Section 80C of the Income Tax Act.|
The article is meant to be general and informative in nature and should not be construed as solicitation material. Please read the related product brochures for exclusions, terms and conditions, warranties, etc. carefully before concluding a sale.
*Tax benefits are as per the Income Tax Act, 1961, and are subject to any amendments made thereto from time to time’