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What Is Term Insurance Plan with Return of Premium?

What is term insurance plan with return of premium

What Is Term Insurance Plan with Return of Premium?


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April 27, 2020

By : Bajaj Allianz Life

The acceptance of life insurance policies has been increasing in India over the last few years. Increasing awareness and diversified product offerings have played a crucial role in driving acceptance of life insurance. People have started considering life insurance a necessity rather than a tax-saving instrument. The availability of different types of life insurance has increased the customer base of insurance products. Term insurance with return of premium is one of the most popular types of life insurance.

 

What is term insurance plan with return of premium?

 

A term insurance plan with return of premium (TROP) is a variant of a regular term plan. But what is term insurance plan? A Term insurance plan is one of the most important part of financial planning tools for an individual. It ensures life protection to the policyholder and that their family’s life-goals aren’t derailed in their absence. It offers a pre-decided amount to the nominee on the death of the life insured. However, if the insured survives the policy, he/she doesn’t receive anything and the life insurance plan simply ceases to exist. Term insurance with return of premium is a term insurance plan with an added benefit. Term insurance with return of premium offers survival benefit to the life insured. If the life insured survives the policy term, he/she gets back the premiums paid (subject to deduction of applicable charges and taxes) during the term of the plan as per the terms and conditions mentioned under the policy.

 

How is it different from a regular term insurance plan?

 

A term insurance plan with return of premium is a variant of a regular term plan but there are certain differences.

Regular term insurance plan

Term insurance plan with return of premium

A regular term plan, also called pure protection term insurance plan, is the most basic form of life insurance.

A term insurance plan with return of premium is a slightly different from the regular term plan.

A regular term insurance plan offers insurance benefits in the form of death benefit.

A term insurance plan with return of payment offers survival benefit along with death benefit. The insured gets the premiums back (subject to deduction of applicable charges and taxes) if he/she survives the entire term of the plan. In case of death, the nominee gets the sum assured.

A regular term insurance plan offers higher coverage, which is equal to around 10 times the annualized premiums paid i.e. number of years for which the premium has been paid.

A term insurance plan with return of premium offers relatively lower coverage.

A regular term insurance plan is comparatively the most affordable life insurance product and the premiums are very low.

The premiums of term insurance plan with return of premiums have higher premium when compared to regular term insurance plans.

Despite several differences, both a regular term insurance plan and term plan with return of premium provide several tax benefits to the insured. You can claim a tax deduction of up to Rs 1.5 lakh per year for the premiums paid u/s 80C of The Income Tax Act, 1961. The death benefits as well as survival benefit under term plan as well as term plan with return of premium is tax-exempt under section 10 (10D) the Income Tax Act, 1961. Term insurance tax benefits are subject to provisions of Income Tax Act, 1961, as amended from time to time.

 

Benefits of TROP

 

Term insurance with return of premium is an ideal product for people who want to provide a financial cover to their family but also want a minimum level of return. Even though one has to pay slightly more for a TROP, it offers the benefits of insurance along with maturity benefits. The benefits of TROP are:

• Return of premium: The biggest benefit of TROP is the refund of premium at maturity. If the insured survives the policy term, he/she qualifies to receive the total premiums paid (subject to deduction of applicable charges and taxes) for the TROP policy. If you want to get an insurance cover along with the payback of the investment, it is an ideal option for you.

• Assured returns: There are several types of life insurance plans. Some plans offer market-linked returns but the returns are not assured as markets can give positive as well as negative returns. In the case of TROP, the insured is assured of the returns. A TROP is not a participating insurance plan, which means you are not entitled to the profit earned by the insurance company through your investment. Though it does not offer a share in profit, if any, the final returns are guaranteed.

• Peace of mind: Knowing that your family will have access to much-needed funds in your absence helps you lead a stress-free life. With TROP, you can leave behind worries of leaving your family unprotected. The knowledge of getting the total premium back in case you survive provides additional peace.

• Affordable: When comparing the cost of life insurance products, it is important to make a relevant comparison. An online term plan is the most affordable life insurance product, but it does not offer any survival benefits. If you consider life insurance policies that offer survival benefits, TROP is one of the most affordable life insurance plan. It is comparatively the cheapest life insurance that provides survival benefits along with death benefits.

• Tax benefits: You can enjoy a host of tax benefits by investing in a term insurance plan. The premiums paid for the plan is eligible for a tax deduction of up to Rs 1.5 lakh in a year under Section 80C of the Income Tax Act. The survival or death benefit received through the policy is tax-exempt Section 10 (10 D) of the Income Tax Act. The said deductions and exemptions are subject to the provisions contained in the Act, as amended from time to time.

 

Who should buy one?

 

Just like other life insurance plans, the premium of TROP is dependent on the age, health conditions and occupation of the policyholder. Generally, the minimum age for buying a TROP is 21 years while the maximum is 55 years. People in any stage of their life can buy term insurance.

• If you are single, buy term insurance to secure the financial future of your loved ones. It also helps in building a financial cushion for the future.

• If you have a spouse, buy term insurance to protect the financial future of your better half. With a TROP, you can be rest assured that your family will have adequate financial resources even in your absence.

• If you are married and have kids, an online term plan gains immense importance. A TROP becomes crucial as it may ensure that your children do not face any difficulty in completing their education. Term plan guarantees a financially stable future for your family.

 

Conclusion

 

The importance of having adequate life insurance cover cannot be over emphasized. You can easily buy term insurance with return of premium through a click of the mouse. All major insurers offer online term plans which can be bought just by submitting the required documents online and paying the premiums.

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