Term life insurance is a very popular life cover amongst buyers in the insurance market. It is a straightforward and pure insurance product that can be used for a secured financial future. While an insurance term plan could be useful for most people, a term plan with a return of premium can offer better benefits. Confused? Let’s discuss it better with an example.
When Anil was young, his parents had dedicatedly invested in term insurance plans for several years. It made both of them assured that even if one of them dies, the other one will not have to face any financial troubles. When Anil was around 25, his parents thought of putting an end to their term plan and withdrawing their funds instead. They believed that the premium amounts which they had paid for all these years would be refunded too. However, the insurer told them that their term policy did not cover the same to their utter shock.
On the other hand, Anil got to know about the benefits of a term plan with a return of premium. And soon after, he started investing in the same.
What is the Difference Between Term Insurance and Term Insurance Return of Premium?
A regular term insurance plan offers a sum assured to the nominees upon the death of the policyholder. However, there are no maturity benefits associated with a regular term plan. So, if the policyholder survives the term, they do not get any survival benefits or payouts. It is a pure protection plan that only offers a death benefit to the appointed beneficiaries.
With a term insurance return of premium, the policyholder can enjoy maturity/survival benefits after the maturity of the policy term. The sum of all the premiums paid to date is paid back as maturity benefits with a term plan with a return of premium. Besides, it offers similar protection benefits that a term insurance policy usually promises.
Benefits of a Term Insurance Return of Premium (TROP)
Let’s dive straight into the several benefits offered by TROP:
- Survival Benefit: A regular term plan doesn’t offer any payback or the premiums that the policyholder will pay over a period if they survive the term period. However, with a term plan with a return of premium, the policyholder can avail of a survival benefit if they live past the term defined in the policy. This is beneficial as the premium amount could be invested into avenues with high returns.
- Death Benefit: Under TROP, the nominees/beneficiaries of the policyholder can avail of death benefits. This means that the beneficiaries will receive a sum assured if the policyholder dies during the policy term.
- Return of Premium Benefit: With a term insurance plan, the protection available will end as soon as the policyholder stops paying the premium amounts. On the contrary, with a term plan with a return of premium, the policyholder can discontinue paying the premium amounts.
In such a case, the policyholder can return the policy, and the insurer will return the premiums paid till that date with pre-mentioned deductions. Here, it’s useful to understand that discussing the deductions with the insurance company is important before signing up for a TROP term policy.
- Continued Protection Benefit: If the term insurance policyholder discontinues paying the premium amounts, the term plan will lapse. This suggests that the beneficiaries will not receive any death benefits in case of the policyholder’s death. Also, the insurer will hold the regular income benefits of the dependents back in case the term plan lapses.
However, with a term plan with a return of premium, even if the policyholder doesn’t pay the premiums, the term plan will continue to be in effect. The benefits might decrease, though, along with the death and maturity benefits.
- Tax Benefit: Under Section 80C of the Income Tax Act, the premiums paid for the TROP are tax-deductible. Additionally, the return of premium upon maturity as well as the death benefit paid to the family are tax-exempt under Section 10(10D) of the Act.
Simply put, a term plan with a return of premium is a far better choice when it comes to investing in an insurance plan. However, before choosing any TROP plan, it’s always better to check the premium amounts with a term insurance premium calculator. Leading term insurance plans in India like the Tata AIA term insurance plans offer a dedicated term plan calculator to help you determine the exact premium outflow. This can let you calculate your monthly premiums better and choose a plan that matches your budget.