Term Insurance

Best Term Insurance Plan with Return of Premium

by SMCIB on Wednesday, 05 April 2023

Best Term Insurance Plan with Return of Premium

Life is like an adventure on a sailing ship. The winds of fate dictate the course of your voyage. Sometimes the winds are calm and you cruise along smoothly, while other times the winds are rough and turbulent, threatening your ship. But with a reliable life insurance policy, you have an anchor to hold you steady!

For instance, a Term Insurance Plan with Return of Premium (TROP) is like a sturdy anchor, providing your family with the stability they need to weather any storm that comes your way.  The highlight of a TROP plan is that, unlike a traditional term life insurance policy, it returns the premiums paid by you (excluding the taxes) at the end of the policy term. This makes it an attractive option for individuals who want to ensure they receive some financial benefit from their term insurance policy if they outlive the term.

Let’s discuss this in more detail.
 

What is a Term Insurance Plan with Return of Premium?
A Term Insurance Plan with Return of Premium is a type of life insurance policy that offers two types of benefits.

Death benefit
If you pass away during the policy term, your nominee will receive the policy sum assured as the death benefit.

Maturity benefit
If you live past the policy term, you get a maturity benefit. This maturity benefit is a return/refund of all the premiums paid by you during the policy duration, minus taxes. This feature makes a TROP plan unique because traditional term life insurance policies don't offer a maturity benefit.

 

 How is a TROP plan different from a Regular Term Insurance Plan?
As mentioned earlier, a Term Insurance Plan with Return of Premium offers a survival or maturity benefit in addition to a death benefit, which means that you will receive a lump sum payment of the premiums you have paid (minus taxes) if you survive the policy period. But a regular term insurance plan, on the other hand, only offers a death benefit, which means that your beneficiaries will receive the sum assured only in case you pass away during the policy term. If you survive the policy term, you will not get anything.

Let’s see how TROP and Regular Term Insurance differ from each other in various aspects -

 

Term Return of Premium Plan

Regular-Term Insurance Plan

Cost

TROP plans generally come with higher premiums.

The premiums of a term insurance plan are cheaper compared to TROP plans.

Benefit

A TROP plan offers both death and maturity benefits.

A term insurance plan will only provide a death benefit.

Returns

If you survive the policy tenure, a TROP plan will return the premiums paid as per the policy terms and conditions.

A term insurance plan does not offer any payout if you survive the policy duration.

 

Why Should You Invest in a Term Insurance Plan with Return of Premium?

1️⃣ Financial Protection for Your Family
The primary purpose of a TROP plan is to create a financial safety net for your family. In the event of your untimely demise, while the policy is still active, the insurer will pay out a fixed sum of money, called the death benefit, to your nominee. The payout amount will depend on the payout option you chose when you purchased the policy. It can be –

  • A lump sum amount
  • A regular monthly payout, or
  • A combination of both

Your family can use this amount to meet their financial needs, such as daily expenses, outstanding debts, children’s education, etc. This can provide them with the financial stability they need to lead a comfortable life even after you are no longer there to support them.
 

2️⃣ Maturity Benefit
In TROP plans, you are eligible for a maturity benefit if you outlive the policy period. This means that you will receive back all the premiums you have paid over the policy term, excluding taxes.

For example,

Akshara buys a TROP insurance policy with a cover amount of Rs. 50 lakhs and a duration of 20 years, when she is 28 years old. She has to pay an annual premium of Rs. 30,000 (excluding taxes) and she pays them regularly.

Akshara outlives the 20-year policy term. She is eligible to receive the maturity benefit under the plan.

Maturity benefit = Annual Premiums Paid x Number of Years

                            = 30,000 x 20 = 6,00,000

So, Akshara will receive a lump sum payment of Rs. 6 lakhs as the maturity benefit from her insurer.
 

3️⃣ Option to Add Riders
Riders are optional add-ons that can be added to a TROP plan at an extra premium for an extra layer of protection. They provide an additional payout under specific circumstances.

Some of the commonly purchased riders available with a TROP plan include –

  • Critical illness rider
  • Accidental disability rider
  • Accidental death benefit rider
  • Waiver of premium due to critical illness rider
  • Waiver of premium due to accidental disability rider
  • Hospital care rider
  • Surgical care rider

For example, Kunal wants to ensure the financial stability of his dependent family members and buys a TROP with a sum assured of Rs. 50 lakhs. He also buys an accidental disability rider of Rs. 10 lakhs. He chooses a policy term of 20 years and a premium payment term of 10 years. Six years later, he meets with an accident that permanently disables his left leg. He is now eligible for a lump sum payout of Rs. 10 lakhs from the insurer. This payout will help him cover his medical expenses.

Note: This is just an indicative list. There may be other riders as well - depending on the insurer. It is thus crucial to read the policy documents carefully before purchasing a TROP plan.
 

 4️⃣ Dual Tax Advantages
TROP plans provide dual tax advantages -

?Under Section 80C of the Income Tax Act, 1961, the premiums paid towards the plan are eligible for a tax deduction of up to Rs. 1,50,000.

?The payout received by you or your family is exempt from tax under Section 10(10D) of the same Act.

Now that we have discussed a TROP plan and its benefits, let us look at some of the best plans that are available in the market today.
 

Best Term Insurance Plan with Return of Premium
Here are some of the top term insurance plans that offer the return of premium option –

Policy

Premium

Aditya Birla DigiShield Plan

Rs. 19,261

Canara HSBC iSelect Smart 360 Plan

Rs. 24254

HDFC Life Click 2 Protect Super Plan

Rs. 34,685

ICICI Prudential iProtect Return of Premium Plan

Rs. 28,360

PNB Metlife Mera Term Plan Plus

Rs. 24,244


Note: Premiums are taken on 24.02.2023 for a 30-year-old non-smoker male, policy duration of 30 years, cover amount of Rs. 1 Crore, regular pay option.
 

 Keep This In Mind! 
Term insurance plans with return of premium are costlier than regular term insurance plans. These policies can cost up to 2-3 times more than a regular term insurance policy.

You should keep in mind that you will receive a refund of the premiums paid only if you survive the policy term. And, the premium amount that you pay is refunded without any interest and does not account for inflation and the time value of money. Over time, the value of money decreases, which means that the amount you receive as a refund may not have the same purchasing power as the premiums you paid throughout the policy period. As a result, what you receive may be much lower than what you have paid over the years.

If you are someone who doesn't want to let your years of premium payments go to waste and want to receive some sort of return at policy maturity, then a Term Insurance Plan with Return of Premium plan might be worth considering. However, you should make note that you will receive the maturity benefit only if you survive the policy period. Before making a purchase, it is crucial to do thorough calculations and check the terms and conditions of the policy.
 

To Conclude,
A Term Insurance Plan with Return of Premium can be a good choice for those looking for the best of both worlds - protection for their loved ones and also some sort of returns at the end of the policy term. However, it is necessary to carefully consider your needs and budget before making a decision. With the right plan in place, you can be assured that your family's financial future is secure.

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