Benefits of Term Plan with Return of Premium (TROP)

One of the reasons many people do not buy term insurance is this: if they survive the term, they do not receive any payout. Term Insurance is a pure risk cover.Let’s say you are 35 and buy a Term Insurance policy for 25 years. You diligently pay your premium every year. When you turn 60, your policy expires. Now, you no longer have life cover and you do not get any money back either. Most people think that the premium they paid for 25 years is wasted.To address this concern, insurers have introduced Term Insurance with Return of Premium policies or TROP. Also read: How Does A Term Life Insurance Work?

The simplest way to understand the difference between pure Term Insurance and Term Insurance Return of Premium plans is to look at their benefits. The former offers only death benefits, while the latter offers both death and maturity benefits, albeit at a higher premium.

• In a Term Insurance plan, your beneficiaries receive a lumpsum payout when you pass away. But if you survive the term, you or your beneficiaries are not entitled to any payout from the insurance company. Term Insurance, also known as a pure risk cover, is one of the cheapest plans.
• In a Return of Premium Term plan, your beneficiaries receive a payout on your demise. But if you survive the term, you receive maturity benefits – the insurer returns all the premiums you paid.

Let’s relook at the earlier example from a TROP perspective. You buy a Return of Premium Term plan for 25 years at age 35. Now assume you are paying a premium of ₹ 5,000 every year. If you die during the term, your beneficiaries receive the death benefit. If you survive the term, the insurance company will pay you ₹ 5000 x 25 years = ₹ 1.25 Lakhs. Also Read: What is Term Insurance?

TROP falls between pure insurance cover (like term) and an insurance + investment product (like endowment) in the insurance product spectrum.The benefits of TROP are apparent.

Death benefit:

Like Term Insurance, TROP also offers death benefits so you can secure your family financially in the event of your demise.

Maturity benefit:

By paying a slightly higher premium, you can get your premiums back if you survive the policy.

Tax benefits:

You can enjoy the same tax benefits with TROP as any other insurance plan, such as a term or endowment plan.

How does a Return of Premium policy compare with other products?

TROP vs Term Plan:

You pay a higher premium than a term policy but also get survival benefits.

TROP vs. Endowment plans:

You pay a lower premium than an Endowment plan, but your survival benefit will likely be lower (since you do not get any bonuses or additions).Term Insurance plans with Return of Premium are ideal for those who cannot wrap their heads around pure risk cover products but still want affordable cover. Also read: Advantages of investing in TROP

• TROP falls between pure insurance covers like Term Insurance and an insurance + investment product like Endowment plans.
• A Term Insurance plan offers only death benefits, while TROP offers death and maturity benefits.
• With TROP, you pay higher premiums than term plans since you get survival benefits.
• But the TROP premium is typically lower than Endowment plans since your survival benefit will likely be lower (you do not get any bonuses or additions).
• Term Insurance plans with Return of Premium are ideal if you cannot get pure risk cover products but still want affordable coverage.