Understanding Term Insurance with Return of Premium


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Term Insurance

Term insurance is one of the simplest ways to secure your family’s financial future. Traditional term plans provide life cover for a specific period, ensuring a lump sum payout to your family in case of your untimely demise. However, one concern many people have is that if they survive the policy term, the premiums paid over the years do not yield any returns.

To address this, insurers have introduced term insurance with return of premium (TROP). This type of plan combines the benefits of traditional term insurance with the added advantage of returning the premiums paid if the policyholder outlives the policy term.

This guide explains the features, benefits, and considerations of term insurance with return of premium, helping you decide if it’s the right choice for your financial planning.

What is Term Insurance with Return of Premium?

Term insurance with return of premium is a variant of term plans where the insurer refunds the total premiums paid (excluding taxes, rider premiums, or additional charges) if the policyholder survives the policy term.

For example:
If you pay an annual premium of ₹10,000 for 20 years and outlive the policy term, the insurer will return ₹2,00,000 at the end of the term.

Key Features of Term Insurance with Return of Premium

Death Benefit

Like term insurance, TROP provides a death benefit to the nominee if the policyholder passes away during the policy term.

Survival Benefit

If the policyholder survives the term, all premiums paid during the policy period are refunded.

High Coverage

TROP offers substantial coverage amounts, ensuring financial security for your family.

Flexible Policy Terms

Policyholders can choose from a range of policy tenures, typically between 10 and 40 years, depending on their financial needs.

Riders for Enhanced Coverage

TROP policies can be customised with riders, such as critical illness cover, accidental death benefit, or waiver of premium, to provide comprehensive protection.

Tax Benefits

TROP policies offer tax benefits under:

  • Section 80C: Premiums paid are eligible for deductions up to ₹1.5 lakh annually.
  • Section 10(10D): The death benefit and survival benefit are tax-free.

Benefits of Term Insurance with Return of Premium

Guaranteed Returns

Unlike traditional term plans, TROP ensures that your premiums are refunded if you outlive the policy term, making it a risk-free investment.

Financial Security

In case of the policyholder’s demise, the sum assured provides financial stability to the family, covering daily expenses, debts, and future goals.

Savings Element

The return of premium feature introduces a savings component, making TROP appealing for individuals who seek both protection and returns.

Peace of Mind

With TROP, policyholders can enjoy peace of mind knowing that their premiums will not go to waste, regardless of the outcome.

Differences Between Traditional Term Insurance and TROP

FeatureTraditional Term InsuranceTerm Insurance with Return of Premium (TROP)
Premium RefundNo refund if policyholder survives.Refund of premiums on survival.
Premium CostLower premiums.Higher premiums due to refund feature.
Savings ComponentNo savings component.Includes a savings element.
Death BenefitLump sum payout to nominee.Same as traditional term insurance.

Who Should Consider Term Insurance with Return of Premium?

Risk-Averse Individuals

If you prefer a policy that offers guaranteed returns while providing life cover, TROP is an excellent choice.

Young Professionals

Starting a TROP policy early ensures lower premiums and longer coverage, along with savings for the future.

Families with Dependents

If you have dependents and want a policy that provides financial protection and refunds premiums, TROP offers dual benefits.

Long-Term Planners

TROP is ideal for individuals looking to combine life insurance with a disciplined savings approach.

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

Assess Your Financial Needs

Determine the coverage amount and policy term based on your family’s financial responsibilities, such as loans, education costs, and daily expenses.

Compare Premiums

Since TROP premiums are higher than traditional term plans, compare options from multiple insurers to find a balance between affordability and coverage.

Check the Refund Terms

Understand the conditions under which premiums are refunded, including any exclusions or deductions.

Add Relevant Riders

Enhance your policy with riders that address specific risks, such as critical illness or accidental death.

Choose a Reputable Insurer

Opt for an insurer with a high claim settlement ratio and strong customer support to ensure a hassle-free experience for your family.

Limitations of Term Insurance with Return of Premium

Higher Premiums

The premiums for TROP policies are significantly higher than traditional term plans. Evaluate whether the additional cost aligns with your financial goals.

Lower Returns Compared to Investments

While TROP offers guaranteed returns, the refunded amount may not match the returns from other investment avenues. Consider your risk appetite and explore alternative investments if higher returns are a priority.

Limited Liquidity

TROP policies are long-term commitments, and surrendering the policy prematurely may result in reduced or no refunds.

Tips for Maximising the Benefits of TROP

  • Start Early: Purchase a TROP policy early to lock in lower premiums and maximise coverage.
  • Align with Financial Goals: Ensure that the policy term aligns with your long-term financial objectives.
  • Review Regularly: Periodically review your policy to ensure it meets your evolving needs.
  • Inform Your Nominee: Keep your nominee informed about the policy details and claim process.

Conclusion

Term insurance with return of premium is an innovative solution for individuals seeking both financial protection and guaranteed returns. While the higher premiums may deter some, the dual benefits of life cover and premium refund make it an attractive option for risk-averse individuals and long-term planners.

When choosing a TROP policy, carefully assess your financial needs, compare options, and consider the reputation of the insurer. With the right plan, you can enjoy the peace of mind that comes from knowing your family is protected, and your investment is secure.


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BSV Staff

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