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Term Plan with Return of Premium

A term insurance plan with a return of premium (TROP) is the right policy for you if you want to benefit from term insurance and receive your premiums back when the policy matures. Read ahead to find out more about it.

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Amit Raje
Written By :
Amit Raje

Amit Raje is an experienced marketer who has worked in various Fintechs and leading Financial companies in India. With focused experience in Digital, Amit has pioneered multiple digital commerce in India. Now, close to two decades later, he is the vice president and head of the D2C business department. He masters the skill of strategic management, also being certified in it from IIMA. He has challenged his challenges and contributed his efforts in this journey of digital transformation.

Amit Raje
Reviewed By :
Prasad Pimple

Prasad Pimple has a decade-long experience in the Life insurance sector and as EVP, Kotak Life heads Digital Business. He is responsible for developing user friendly product journeys, creating consumer awareness and helping consumers in identifying need for life insurance solutions. He has 20+ years of experience in creating and building business verticals across Insurance, Telecom and Banking sectors

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.

Key Takeaways

  • Term insurance plan with return of premium (TROP) provides financial protection to your family in case of your untimely demise.
  • It also provides a survival benefit, returning 100% of your premiums if you outlive the policy term, offering a tax-free lump sum payment.
  • It effectively lowers policy costs while ensuring substantial financial protection.
  • It allows flexibility in policy terms and offers tax benefits, making it a versatile and financially prudent choice.

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

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, which is 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.

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 of the benefits it offers:

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 that is 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

Depending on the method of payment selected by the policyholder, the surrender value of term insurance under a return of premiums plan varies. The surrender value is offered more for single premium policies where the entire insurance premium is paid at the time of application. Insurance companies base their calculation of the surrender value on several variables. Therefore, before obtaining the policy, a person should make an estimate of the amount they will get as a surrender benefit.

Death Benefit

In TROP, when the insured individual passes away during the policy term, the death benefit is offered as the complete sum assured amount to the beneficiary of the policy. 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

It is always your responsibility as a couple 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 make sure they have access to financial resources during their retirement, as well as protect their families with life insurance. This gap is filled by return on premium term insurance.

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 paid by you are used to provide only life cover and not for investment purposes. This makes the policy more cost-effective and a better option for those who want to protect their loved ones without spending a lot of money.

Flexibility to Choose the Policy Term

With a term plan with a return of premium option, you have the flexibility to 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. The premiums paid by you 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.

Features of Term Plan with Return Premium

TROP policies offer the dual benefits of life insurance and savings, making it an ideal investment option 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 to have a safety net but also want to ensure that their money is not wasted.

Flexible Payout Options

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

Final Thoughts

In the world of insurance, 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 making a decision, consult with a financial advisor, assess your unique requirements, and make an informed choice that secures your future and ensures peace of mind.

- A Consumer Education Initiative series by Kotak Life

Kotak e-Term

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Features

  • Life Cover till 85 years for Life & Life Secure Option
  • 3 Payout Options
  • Special Rates for Women
  • Option to exit the policy with premium refund at the age of 60*
  • Special Rates for Non-Tobacco Users
  • Free Medical Check Up every 5th year**

Ref. No. KLI/22-23/E-BB/2435

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