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Term Plan With Return Of Premium – Know All About It


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March 17, 2020

By : Bajaj Allianz Life

Many Life insurance customers have expressed their concern on losing out their money if no claims are made during the tenure of their term insurance plan. To address this, life insurance companies are offering term insurance plans with a return of premium option. It means that if the Life assured continues to live through the policy tenure then at the end of policy term the life insurance company returns all the premium paid towards the policy.

How does a term plan with return of premium work?

Let’s assume a person buys a Term Insurance plan with Return of Premium option with a life cover of Rs. 1 crore for a 30-year term, and pays Rs. 10,000 annualised premium for 30 years. If the Life assured passes away during this policy term of 30 years, the life cover amount will be paid to his/her beneficiaries. But, if the Life assured lives till the end of 30-year policy term, he/she will get back the premium amount paid (10,000*30=3,00,000) less GST ,underwriting extra premiums, and premium paid towards riders, if any at the end of the policy term

Benefits of a Return of Premium Term Insurance Plan

1. Benefit on maturity: As explained above, the biggest benefit to buying a return of premium term insurance plan is the refund of the premium at maturity. Thus a return of premium term insurance plan ensures that a Life assured does not lose the premiums paid over the years, in case he/she survives the policy term. Such term insurance plans thus act as saving instrument too, in addition to an insurance cover.

2. Continuation of policy, even in case of non-payment of premiums: Return of premium term insurance plans provide paid-up options in case a Life assured misses paying premiums. This benefit is useful for those who don’t have a fixed or regular source of income and thus carry the possibility of missing some premium payments. Through this option, in case a Life assured discontinues paying premiums after three policy years, the term insurance policy continues but with reduced benefits. The premium paid by the Life assured will be returned at maturity if the Life assured survives the policy term, whereas if the Life assured dies, the beneficiaries will get a reduced sum assured.

3. Guaranteed returns on of premiums: Term plans with the return of premiums benefit guarantee a cash inflow in the form or return of premiums, at the time of maturity, if the Life assured survives the policy term. Thus if you want guaranteed returns of premium from your term insurance policy, you can opt for a term plan with return of premium option.

4. Tax benefits: The premium paid on return of premium term insurance plans is tax-exempt under Section 80C of the Income Tax Act, 1961. A total amount of Rs. 1,50,000 is exempted under the sections. Further, the amount received at maturity period is also tax exempted under the Section 10 (10D) of the Income Tax Act.

5. Surrender Value: If a Life assured surrenders a return of premium term insurance plan, the policy coverage is no longer in place but he/she might receive back a portion of the total premiums paid.

Conclusion

Many customers find Return of premium term insurance plans valuable due to the return of premium feature, in addition to the fact that in case something were to happen to the Life assured, their family still gets the life cover. The benefit of receiving the premiums back provide protection from sunk costs and allows Life assured to build a corpus of savings.

However, it is important for those considering these term insurance plans to carefully choose the right amount of sum assured for having adequate coverage with or without the return of premium. At the same time, it is important to diligently pay term insurance premiums to ensure that one’s life goals are not derailed by unexpected events and circumstances.

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3Discount is available for regular premium and limited premium payment frequency under all variants of this product.

2Above illustration is considering Male aged 25 years | Non-Smoker | Life Cover Variant | Policy term (PT)– 30 years | Premium Payment Term (PPT) – 30 years | Sum Assured opted is Rs. 1,00,00,000 | Online Channel | medical rates | Annual Premium Payment Mode | Premium shown above is exclusive of Goods & Service Tax/any other applicable tax levied, subject to changes in tax laws, and any extra premium and is for illustrative purpose only.

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The above information is for general understanding and is meant to educate the general public at large. The reader will have to verify the facts, law and content with the prevailing tax statutes and seek appropriate professional advice before acting on the basis of the above information.