What are term plans with return of premium?
A return of premium term insurance plan is a term plan that comes with an additional benefit– return of premium benefit. This means in case the life assured survives the policy term, the life insurance company returns all premiums paid by the life assured, at the end of the policy term. These plans are called Term Insurance with Return of Premium (TROP) option. They come with a relatively higher premium than a pure protection term plan.
Let’s take a look at the key differences between term plans with return of premium option and regular term insurance plans:
1. Maturity benefits: The main difference between these two types of term insurance plans is the availability of maturity benefit. Regular term insurance doesn’t offer any maturity benefit to life assured at the end of the policy term. On the other hand, term plans with return of premium allows life assured to receive the premiums they have paid at the time of maturity if no claims have been made during this period.
2. Cash value: There is no cash value or monetary value in a term insurance plan - it only offers financial security to the life assured. However, a term plan with return of premium empowers the life assured to get back the premiums in cash value, if he/she outlives the policy.
3. Tax Benefits: While both types of term insurance plans offer tax benefits under section 80C, 80D and 10(10D) of the Income Tax Act, 1961, the return of the premium term insurance plan is exempt from tax on the maturity benefit received in the hands of the life assured, subject to provisions stated therein.
4. Surrender value: A term insurance plan with regular premium payment option does not provide any surrender value, if the life assured wishes to surrender the term insurance plan. However, a term plan with return of premium, the life assured will be eligible to receive a certain proportion of the premiums paid as surrender value, subject to the terms and conditions of the policy.
5. Paid-up option in case of non-payment of premiums: If a life assured misses to pay the regular premiums in a term insurance plan, the policy lapses, and the policyholder is not eligible for any benefits. Return of premium term plans allows the life assured to continue with their policy, but at a reduced sum assured benefit, in case the life assured is not able to pay the premium amount.
Both these term insurance plans are offered by life insurers today, covering different needs and financial goals of customers. So, compare the benefits of both types of term insurance plans before buying, and chose the term insurance plan that best suits your needs.
