Is Return-of-Premium (ROP) in Life Insurance Worth It?

• 20th Jun 2019
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Life insurance is an effective investment instrument to help you build wealth. However, more importantly, it is a primary source to ensure the financial wellbeing of your family in your absence. This is why a life insurance policy is an important part of your portfolio.

Difference between a traditional term insurance policy and a life insurance policy 

It is very important to understand the difference between a traditional life insurance policy and a term insurance policy. A term insurance cover will ensure that your loved ones are financially secure in your absence and the sum assured will be paid to the nominees in case of an untoward incident. You do not receive any maturity benefit in case of your survival. On the other hand, in case of a traditional life insurance policy, you receive a maturity benefit in case of survival. 

Overview of Return of Premium (ROP) option with life insurance plans 

Numerous insurance providers offer the Return of premium (ROP) option with a traditional term plan. In order to avail of this option, you might have to pay a higher premium amount. However, you will be able to receive the entire amount that you have paid as a premium during the term of the policy, at the time of maturity of the plan. This option does sound to be beneficial over a long period. You can also consider investing a ’Return of Premium Term Life Insurance Plan’. Since the return is guaranteed after the maturity of the plan, the amount invested can be treated as a return. 

Advantages of ROP with a life insurance plan 

An ‘ROP life insurance plan’ can be considered as a guaranteed returns plan. You can invest in such a plan as per your risk appetite. This plan gives you non-risk evaluated guaranteed benefits. It is very different from the market-linked investment instruments. It is an ideal option if you wish to earn fixed benefits while playing a higher premium. It can serve as an ideal investment instrument to help you achieve your long-term goals. 

You need to remember that the ‘ROP life insurance plan’ will cost you more, as you need to pay a higher premium each year. You need to consider the plan only if it fits your needs. If you have a low-risk appetite, and are looking to earn income at the end of the policy term, this plan is suitable for you. In case of a term plan, you only get a cover for life and no return of premium but if you chose a term insurance plan with an ROP option, you will receive the premium amount after the policy matures. You can start investing in an ‘ROP life insurance plan’ by keeping your financial goals in mind. This will allow you to fulfill your goals at the end of the policy term. Compare the cost and benefits of this feature before you make a decision. Always consider your personal requirements and the purpose of investment before investing in the plan.

- A Consumer Education Initiative series by Kotak Life