Term Plan with Return of Premium

Term Insurance Plan with Return of Premium (TROP) is a type of life insurance policy that combines the benefits of traditional term insurance and allows the policyholder to receive a refund of premiums paid if they survive the policy term.

Term Insurance Plan with Return of Premium (TROP) is a specialized policy tailored to policyholders’ requirements. Like regular term insurance, TROP offers financial security to the insured’s family in times of crisis. However, what sets term life insurance with return of premium apart is its unique feature of granting survivor benefits.

What is a Term Insurance Plan with Return of Premium (TROP)?

With one significant exception, TROP is similar to a standard term insurance policy. With this policy, you can reimburse your premiums when it matures. You pay the yearly premiums throughout the policy’s term, and if you outlive the policy duration, it will reimburse 100% of your premium payments. This is known as the “survival benefit” of a premium return term plan, which is tax-free.

TROP effectively lowers the cost of your policy to almost nothing while providing you with more substantial financial advantages. The policy pays your beneficiaries the death benefit, a predetermined amount for which you pay the premiums if you pass away during the term.

How Does Term Insurance Plan with Return of Premium Work?

A term return of premium plan is a non-participating insurance policy that provides the insured’s family with a death benefit in addition to the return of the premium as a survival benefit if the life assured survives during the period of the policy.

The policyholder pays the premiums for the specified term, just like with a regular term life policy. However, unlike a regular policy, the premiums for TROP are generally higher because a portion of the premium is set aside in a savings account that accrues interest over the term of the policy. At the end of the term, if the policyholder is still alive, they receive a lump sum payment that is equal to the total premiums paid over the term plus the accumulated interest.

So, let us say you purchase a 20-year TROP policy with a death benefit of ₹500,000 and a premium of ₹100 per month. Over the course of the 20-year term, you would pay a total of ₹24,000 in premiums (₹100 x 12 months x 20 years). If you die during the term, your beneficiaries will receive the ₹500,000 death benefit. However, if you outlive the term, you would receive a lump sum payment of ₹24,000, which is equal to the total premiums you paid over the 20 years, plus the accumulated interest.

Features of Term Plan with Return Premium

TROP policies offer the dual benefits of life insurance and savings, making them ideal investment options for individuals who want to secure their financial future.

Provides Financial Protection

The primary benefit of a term plan with a return of premium feature is that it offers financial protection to your loved ones in case of your untimely demise. This type of policy provides a lump sum payout that can be used to pay off debts, cover living expenses, or fund your children’s education.

Saves Money

A term plan with a return-of-premium feature allows you to recoup your premiums paid in case you outlive the policy term. This means that you do not lose any money if you do not make a claim, making this policy an attractive option for those who want a safety net but also want to ensure their money is not wasted.

Flexible Payout Options

Depending on your chosen policy, a term plan with a return of premium can offer various payout options. You can receive the entire sum assured as a lump sum or opt for a regular income payout over a specified period.

Benefits of Term Insurance with Premium Refund

Term insurance is a popular form of insurance that provides financial protection to your loved ones in case of your untimely passing. While term insurance offers valuable coverage, a term insurance plan with a premium refund option is even more advantageous. Let us look at some benefits of term insurance:

Maturity Benefit or Survival Benefit

The term return of the premium policy differs from a pure term insurance policy as it offers a maturity or survival reward. Under TROP, if the policyholder survives the duration of the insurance, the entire premium is returned to them as a survival reward. On the other hand, a conventional term insurance plan does not provide a maturity benefit.

Sum Assured

The life insurance coverage provided by the insurance company to the policyholder at the time of plan enrollment is referred to as the sum assured in the term plan with a return of premium. The TROP gives a lesser sum insured amount than a pure protection plan because the policyholder receives their premium refund.

Surrender Value

The surrender value of term insurance under a return-of-premiums plan varies depending on the policyholder’s method of payment. The surrender value is offered more for single premium policies where the entire insurance premium is paid at the time of application. Insurance companies calculate the surrender value based on several variables.

Death Benefit

In TROP, when the insured individual passes away during the policy term, the death benefit is offered to the policy beneficiary as the sum assured amount. The sum guaranteed is determined by the kind of coverage and the premium payment method selected by the policyholder when the policy was purchased.

Who can Buy Term Insurance with a Return of Premium (TROP)?

TROP is an excellent option for those who want to protect their loved ones in the event of their untimely demise while also receiving a refund of their premiums at the end of the policy term. You can buy TROP if you are:

Single

When you purchase a term policy with a return of premium as a single person, the maturity benefits may serve as an additional corpus when the plan matures, allowing you to provide life insurance protection for your family.

Married

As a couple, it is always your responsibility to protect your spouse from unforeseen life events. Purchasing insurance with a return of premiums can guarantee that your partner will be taken care of in the event of your passing, and the maturity bonus will be able to assist them in the future.

Married and Have Children

There are always more responsibilities when kids are involved. Therefore, having comprehensive life insurance and the ability to receive premium refunds at maturity can be a wise choice in these circumstances.

Senior Citizen

Senior citizens should ensure they have access to financial resources during their retirement and protect their families with life insurance. Return on premium term insurance fills this gap.

Difference Between Pure Term Insurance and Term Plans with Return of Premium

While buying a Term Plan with Return of Premium, it is important to know how it differs from pure term insurance. Let us take a quick look at the difference between these two:

Why Should You Choose a Term Plan with Return of Premium Option?

Term plan with a return of a premium option offers several benefits that make it an attractive option for those who want to protect their family financially while also being able to get back their premiums at the end of the policy term. Following are some reasons why you should consider choosing a term plan with a return of a premium option:

Financial Protection for Your Loved Ones

The primary purpose of any life insurance policy is to provide financial protection to your loved ones in case of an unfortunate event like your untimely demise. A term plan with a return of premium option provides this protection by offering a lump sum payout to your nominee in case of your death during the policy term.

Return of Premiums

One of the unique features of a term plan with a return of premium option is that you get back all the premiums paid by you at the end of the policy term if you survive the term. This means that if you outlive the policy term, you will get back all the money you have invested in the policy. This can be a great way to save for future expenses like your child’s education or your retirement.

Lower Cost than Traditional Life Insurance Policies

Term plans with a return of premium option are generally more affordable than traditional life insurance policies. This is because the premiums you pay are used to provide only life cover and not for investment purposes. This makes the policy more cost-effective and better for those who want to protect their loved ones without spending much money.

Flexibility to Choose the Policy Term

With a term plan with a return of premium option, you can choose the policy term that suits your needs. You can choose a term depending on your financial goals and the age of your dependents. This flexibility allows you to customize the policy to meet your specific needs.

Tax Benefits

Like any other life insurance policy, a term plan with a return of premium option also offers tax benefits. Your premiums are eligible for tax deductions under Section 80C of the Income Tax Act, 1961. Additionally, the payout received by your nominee in case of your death is also tax-free under Section 10(10D) of the Income Tax Act.

How to Choose the Best Term Insurance with Return of Premium?

Choosing the best term insurance with a Return of Premium (ROP) involves several key considerations. Follow these steps to select the best ROP plan:

• Determine how much coverage you need based on your financial goals, dependents, and future financial goals.
• Compare the premiums of different ROP term insurance plans. Ensure that the premiums are within your budget without compromising on the coverage amount.
• Check if the insurance company offers flexible premium payment options (monthly, quarterly, annually).
• Understand how much of the premiums will be returned at the end of the policy term if no claim is made.
• Choose an insurer with strong financial stability and good ratings from agencies like SEBI (Securities and Exchange Board of India), CRISIL (Credit Rating Information Services of India Limited), etc.
• Consider additional riders, such as critical illness, accidental death, or disability, that can be added to your term plan for enhanced coverage.
• Look for features like convertibility (converting term insurance to whole life insurance) and renewability (renewing the policy without medical exams).
• Verify the duration of the free look period, during which you can review the policy and cancel it if it does not meet your expectations without incurring penalties.
• Consult with a financial advisor or insurance agent for personalized advice based on your financial situation and goals.

Key Takeaways

• The Term Insurance Plan with Return of Premium (TROP) offers survivor benefits at the end of the policy term.
• If the policyholder survives the term, they receive the total premiums paid plus accumulated interest.
• TROP premiums are eligible for tax deductions under Section 80C, and payouts are tax-free under Section 10(10D).
• Term insurance with returns is suitable for singles, married individuals, those with children, and senior citizens.

Final Thoughts

Having options is always a good thing, and a Term Insurance Plan with a Return of Premium is an excellent addition to the array of policies available. It offers the much-needed financial security for your family and the potential for a financial reward if you survive the policy term. So, before deciding, consult with a financial advisor, assess your unique requirements, and make an informed choice that secures your future and ensures peace of mind.

FAQs on Term Plan with Return of Premium