A Guide To Term Plans With Returns Of Premium (TROP)
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 nominee(s). 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, subject to terms & conditions of the policy.
Features of Term Plan with Return of Premium
Term plans with return of premium have the following common features1 –
- The premiums are usually higher than pure-term plans because of the maturity benefit component.
- They offer a guaranteed* maturity benefit.
- Usually entire amount of the premium paid for the base plan is returned.
Return of premium term plans also offers a surrender benefit if the life assured wishes to Surrender the term insurance plan. It also provides reduced sum assured benefit if the premiums are discontinued. Aforesaid benefits are provided subject to the terms & conditions of the policy.
- You can choose to pay the premium monthly, quarterly, half-yearly or annually if the plan allows it.
- GST paid on the premium is also not refunded.
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. Through this option, in case a Life assured discontinues paying premiums after three policy years, the term insurance policy continues but with reduced benefits, subject to policy terms & conditions. 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 nominee(s) will get a reduced sum assured.
3. Guaranteed* returns on premiums:
Term plans with the return of premiums option guarantee a cash inflow in the form of 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 consider opting 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, subject to provisions stated therein. A total amount of Rs. 1,50,000 is exempted under the section. 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 as surrender value, subject to terms & conditions of the policy.
Why Should you Choose a Term Plan with a Return of Premium Option?
A term plan with a return of premium option is feasible for the following reasons –
1. Maturity benefit
If you are not considering term plan simply because of the lack of a maturity benefit, a term plan with a return of premium takes care of your dilemma. The plan tells you about both worlds. You get insurance protection during the policy tenure and a guaranteed* benefit when the plan matures. This maturity benefit can give you a lump sum fund to pay for your financial goals or needs.
2. Complete coverage
While the return of premium plans offers a maturity benefit, they do not compromise on the coverage. Just like term plans, the return of premium plans allows you to opt for an adequate sum assured for your coverage needs. The financial benefit that the plan pays can help your family take care of the financial loss suffered in your absence.
Who Can Buy Term Insurance with a Return of Premium?
Term insurance with a return of premium plan is suitable for individuals looking for insurance protection without losing out on the maturity benefit.
- Young adults can buy the policy to avail themselves of early coverage. They can choose a long-term tenure for insurance protection and then get the premiums refunded on maturity.
- Adults in their 30s or 40s can also opt for the plan to avail of insurance coverage. They can secure financial protection for their family and also benefit from the maturity benefit.
- People in their 50s and 60s can also opt for the policy. The coverage would give them financial security, while the maturity benefit would add to their retirement corpus.
So, you can assess your needs and invest in a suitable Term Plan with return of a premium option.
Term Plan with Return of Premium vs Pure Term Insurance
Here’s a comparative analysis between a Term Plan with return of premium v/s pure term insurance –
Pure term insurance
Return of premium term insurance
An insurance policy that covers the risk of a premature demise.
An insurance policy that covers the risk of premature demise and pays a benefit on survival till maturity.
Refund of premiums paid at maturity for the basic plan
No benefit is paid
Provision of a reduced paid-up value and surrender value. While the paid-up value allows policy continuity with reduced benefits, a surrender value is paid if the policyholder exits the policy during the policy tenure
Many customers find Return of premium term insurance plans suitable 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 helps 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.
1. Can you get your money back from term insurance on maturity?
Term insurance plans do not offer any money-back benefit on maturity. However, if you buy the return of premium term plans, your premiums are refunded if the plan matures.
2. What are some of the factors which makes term plan with a return of premium a suitable plan?
A suitable term plan with return of premium would be one which fulfils the below mentioned criteria –
- Offers adequate sum assured
- Offers a range of optional riders for coverage enhancement, on payment of additional nominal premium
You can compare the available return of premium term plans on some of the parameters mentioned above and choose the suitable one.
3. Which companies offer a term insurance plan with a return of premium option?
Usually, many companies offer a term insurance plan with a return of premium option. Some offer the return of premium benefit as an option with the main term plan, while others might offer a standalone policy.
4. Are the term plans with the return of premium option worth considering?
Term plans with a return of premium are a suitable choice if you are seeking a maturity benefit with term insurance protection. You get an assured* refund of your premiums on maturity so that you don’t lose out on the premium paid to avail of the coverage. Moreover, such plans have the provision for paid-up and surrender benefits, subject to the terms & conditions of the policy.
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