Term Insurance Plan with a Return of Premium (TROP) is a type of life insurance policy that combines the benefits of traditional term insurance with a unique feature that allows the policyholder to receive a refund of premiums paid if they survive the policy term.
Key takeaways
- TROP is similar to a standard term insurance policy but reimburses your premiums when the policy matures.
- The policyholder pays the premiums for the specified term, just like with a regular term life policy.
- The surrender value is offered more for single premium policies where the entire insurance premium is paid at the time of application.
One type of term insurance policy that is specifically created to meet the needs of policy purchasers is Term Insurance with Return of Premium (TROP). Similar to a regular term insurance plan, the TROP provides the advantage of financial protection for the insured’s family against any sort of emergency. But one of the distinguishing characteristics of term insurance with a return of premium plan is that it additionally provides survivor rewards.
What is a Return of Premium Term Insurance Plan?
With one significant exception, TROP is similar to a standard term insurance policy but reimburses your premiums when the policy matures. You pay the yearly premiums throughout the policy’s term. If you live longer than expected, the policy will reimburse 100% of your premium payments, known as the “survival benefit,” 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.
What is the Operation of Term Insurance with Return of Premium?
Consider a term plan with a ₹30 lakh rupee cover for 10 years with a premium of ₹3000 rupees yearly. The family would receive ₹30 lakh as the sum assured amount in the event of the life assured’s passing. However, the insurance provider will refund the whole premium amount, or ₹30,000, if the life assured lives out the policy’s entire term (₹3000 X 10).
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.
How Does Term Insurance with Return of Premium Work?
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 would 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.
There are some pros and cons to TROP that you should consider before deciding if it is right for you. One of the biggest advantages is that you can get a refund of the premiums paid if you outlive the policy term. This can be a great way to get some of your money back and use it for other financial goals. Additionally, TROP policies can be a good option for those who want the protection of a term life policy but are hesitant to pay for something they may never use.
On the other hand, the premiums for TROP policies are generally higher than those for regular term life policies because a portion of the premium goes towards the savings account that accumulates interest. This means that TROP policies may not be the most cost-effective option for some people. Additionally, if you were to cancel the policy before the end of the term, you may not get back all the premiums you paid, as some of the money may have been used to pay for administrative fees and other costs.
Benefits of Term Insurance with Premium Refund
Life is full of unexpected events, and it is essential to be prepared for any eventuality. Term insurance is a popular form of insurance that provides financial protection to your loved ones in case of your untimely demise. While term insurance offers valuable coverage, a term insurance plan with a premium refund option is even more advantageous.
A term insurance plan with a premium refund option is an insurance policy that offers the benefit of refunding the premiums paid by the policyholder if you outlive the policy term. In other words, if you survive the policy term, you will receive the entire premium amount back. This unique feature makes it a win-win situation for policyholders, as they get both the protection and their money back.
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 for 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, during an unfortunate event where 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 Return of Premium (TROP)?
Term Insurance with Return of Premium (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. However, not everyone is eligible to purchase TROP insurance.
First and foremost, individuals who are looking for a high level of protection for their loved ones can benefit from TROP insurance. This type of policy typically offers a higher death benefit than traditional term insurance, and it also provides a refund of premiums at the end of the policy term. This can be an attractive option for those who want to ensure that their loved ones are taken care of financially, even if they do not pass away during the policy term.
Secondly, those who want to invest in a policy that offers both protection and savings can also benefit from TROP insurance. With traditional term insurance, you do not receive any of your premiums back at the end of the policy term. However, with TROP insurance, you have the opportunity to receive a refund of all the premiums you paid over the policy term. This can be an attractive option for those who want to invest in their future while also protecting their loved ones.
Thirdly, individuals who are in good health and have a stable income can be good candidates for TROP insurance. Insurance companies typically require a medical exam and review of your financial stability before issuing a policy, so if you are in good health and have a stable income, you may be eligible for TROP insurance.
Finally, those who are looking for an affordable life insurance policy can benefit from TROP insurance. While TROP insurance can be slightly more expensive than traditional term insurance, it is an affordable option for those who want to protect their loved ones and receive a refund of their premiums at the end of the policy term.
Why Should You Choose a Term Plan with Return Of Premium Option?
When it comes to choosing a life insurance policy, there are a variety of options available in the market. However, one option that is gaining popularity among policy buyers is a term plan with a return of a premium option. This type of policy offers several benefits that make it an attractive option for those who want to protect their loved ones financially while also being able to get back their premiums at the end of the policy term.
Let us now look at 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.
Get Back Your 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.
Term Plan with Return of Premium Features
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
Term insurance with a return of premium is the most fundamental kind of life insurance available on the market. The rates for a term insurance plan are significantly less expensive than those for an endowment or ULIP plan. Additionally, you get the money that is guaranteed to cover your life. With a term insurance plan, you may protect your life for as little as ₹7,000 for up to ₹1 crore (actual sum assured and premiums may differ from one insurer to another).
Because it will pay out the death benefits if your other investments do not due to things like turbulent markets, term insurance is a wise way to supplement any other investments you may have made (particularly in the case of ULIPs). The fact that you may leave behind a sizable sum of money for your family without having to pay top dollar for it makes it also quite practical.
FAQs
1
Are the term plans with the return of premium option worth it?
Whether a TROP plan is worth it depends on the individual’s specific financial situation and goals. It is important to carefully consider the cost of the policy, the potential return of premiums, and the opportunity cost of investing the extra premium amount before making a decision. A qualified financial advisor can provide personalized guidance on whether a TROP plan is a good option for an individual’s specific needs.
2
What is the return on premium in term life insurance?
Return of premium (ROP) is a type of term life insurance policy that provides a refund of premiums paid if the policyholder outlives the term of the policy. With a traditional term life insurance policy, if the policyholder dies during the term of the policy, the beneficiaries receive the death benefit payout, but if the policyholder survives the term, there is no payout.
With an ROP policy, the policyholder receives a refund of all or a portion of the premiums paid at the end of the term if they have not made a claim. The amount of the refund depends on the policy terms and can vary based on factors such as age, health, and the length of the policy term.
3
Which is the best term plan with a return of premium?
A term plan with a return of premium is a type of life insurance policy that provides coverage for a specific period of time and returns the premium paid by the policyholder if they outlive the policy term.
The best term plan with a return of premium is subjective and depends on individual needs and preferences.
4
What is the catch with the Term insurance plans with the return of premium option?
The main catch with term insurance plans with a return of premium option is that they typically have higher premiums compared to regular term insurance plans. This is because the insurance company needs to set aside a portion of the premium amount to ensure that they can pay the return of premium benefit at the end of the policy term. As a result, the premiums for these plans can be significantly higher than regular term insurance plans, which do not offer any return of premium benefit.
Another important consideration is that the return of premium benefit is typically only paid if the policyholder survives the entire policy term. If the policyholder passes away during the policy term, the beneficiaries will receive the death benefit, but the policyholder or their estate will not receive any return of premium benefit. Therefore, individuals who choose a term insurance plan with a return of premium option need to be prepared to pay the higher premiums over the policy term, with the hope that they will outlive the term and receive the return of premium benefit.
5
Should I buy a Term insurance plans with a return of premium option?
Whether or not you should buy a term insurance plan with a return of premium option depends on your individual financial goals and circumstances. Here are some factors to consider:
- Cost
- Investment goals
- Risk tolerance
6
Can you get your money back from term insurance on maturity?
Yes, you can get your money back from a term insurance policy on maturity, but it depends on the type of policy you have. Term insurance is a type of life insurance that provides coverage for a specified term. If the policyholder dies during the term of the policy, the beneficiaries receive a death benefit. However, if the policyholder survives the term of the policy, there is no payout.
7
What does the return on premium mean?
Return of premium (ROP) is a type of insurance policy feature that provides the policyholder with a refund of the premiums they have paid if certain conditions are met.
The ROP feature is usually found in life insurance policies, where the policyholder pays premiums for a certain period of time and receives a death benefit payout to their beneficiaries upon their death. With an ROP policy, if the policyholder outlives the policy term, they will receive a refund of all the premiums they have paid, typically tax-free.
8
What is the death benefit under the return of premium term insurance plan?
The death benefit under a return of premium term insurance plan is the amount of money that is paid out to the beneficiaries if the insured person passes away during the policy term. The death benefit is typically paid out tax-free and can be used by the beneficiaries to pay for funeral expenses, outstanding debts or to support their financial needs.
It is important to note that the death benefit amount is determined at the time the policy is purchased and is based on factors such as the insured person’s age, health, and lifestyle habits. The premiums for a return of premium term insurance plan are generally higher than for a standard term insurance policy because of the added feature of the return of premium option.
9
Is the Term insurance plans with the return of premium option a good deal?
The TROP policy provides a safety net for the policyholder’s beneficiaries if the policyholder passes away during the policy term. However, if the policyholder survives the policy term, they will receive the premiums paid back in full, without any interest.
TROP policies offer several advantages over traditional term insurance policies, primarily because of the return of premium features. Policyholders can view this policy as a form of forced savings, as they will receive a lump sum payment at the end of the policy term. This can be an attractive option for those who want to ensure that they get back the premiums paid if they outlive the policy term.
10
What Is The Eligibility Criteria For Term Plan With Return Of Premium?
TROP are a type of life insurance policy that provides both life coverage and a return of premium at the end of the policy term if the policyholder survives the term. The eligibility criteria for TROP policies may vary slightly between insurance companies, but here are some general factors that are considered:
Age: Most insurance companies set a minimum and maximum age limit for TROP policies. Generally, the minimum age for purchasing a TROP policy is 18 years, while the maximum age can range from 50 to 65 years, depending on the insurer.
Health: Insurance companies assess the health of the policyholder through a medical examination. Generally, TROP policies are available to healthy individuals who do not have any pre-existing medical conditions that increase the risk of mortality.
Occupation: Some insurance companies may ask for details about the policyholder’s occupation, as certain occupations may be considered high-risk and may affect the eligibility for a TROP policy.
Policy Term: The policyholder must choose a specific policy term at the time of purchasing a TROP policy. The policy term can range from 10 to 30 years, depending on the insurer.
Premium: The policyholder must pay a premium for the TROP policy, which is usually higher than that of a pure-term life insurance policy. The premium amount may vary based on the policy term, age, health, and other factors.
11
Does Smoking Habit Affect The Term Plan With Return Of Premium?
Yes, smoking habits can affect the term plan with a return of premium. Term plans are life insurance policies that provide coverage for a specific period of time, and they often come with an option for the return of premium, which means that if the policyholder survives the term, they will receive their premiums back.
However, smoking habits can increase the premiums for a term plan, as smokers are considered a higher-risk group for life insurance companies. This is because smoking is associated with several health risks, including lung cancer, heart disease, and stroke, among others. Smokers are also more likely to die at a younger age, which increases the likelihood that they will make a claim on their policy.
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Should I Buy A Regular Term Plan Or TROP?
The choice between a Regular Term Plan and a TROP plan largely depends on your individual financial goals and priorities. If you are primarily looking for life insurance coverage and are not concerned about receiving any money back in case you outlive the policy term, then a regular term plan would be a good option. It is a straightforward and affordable way to protect your loved ones financially in case of your unfortunate demise.
13
What Is The Grace Period In Term Plan With Return Of Premium?
A grace period in a term plan with a return of premium refers to the period of time after the premium due date, during which the policyholder can make a payment without incurring any late payment fees or interest charges. The grace period typically lasts for 15 or 30 days, depending on the terms of the policy.
During the grace period, the policy remains in force, and the policyholder is still eligible for the death benefit if they pass away. However, if the policyholder passes away during the grace period and the premium has not been paid, the unpaid premium amount will be deducted from the death benefit paid to the beneficiaries.
It is important for policyholders to make their premium payments on time to avoid any lapses in coverage. However, if a payment is missed, the grace period can provide some extra time to make the payment and keep the policy in force.
