Term Plan with Return of Premium (TROP): Should you Buy?

As a responsible individual, you understand the importance of protecting your family members with an insurance cover. Insurance aims to protect your loved ones from any financial trouble by offering a sum assured in case of your sudden death.While death benefit is the prudent cover that most people seek in a term insurance cover, some intend to receive it once the policy matures. Everyone wants to gain more from the investment. This has led to the introduction of Term Insurance with Return of Premium . As per the plan, the policyholder gets the refund of premiums paid during the tenure, if he chooses Term Insurance with Return of Premium (TROP) variant.

Under this type of policy, you get the survival benefit if you survive through the term period. Along with the above benefit, the insurance companies do not refrain from offering sum assured as a death benefit to the beneficiary if the policyholder has a sudden demise. So, the only difference between a pure term insurance policy and the TROP is the refund of the entire premiums paid if the policyholder survives through the term.

A term insurance with return of premium is basically a non-participating insurance plan. In case of term insurance plan, the policy holder receives coverage on death that is death benefit only. But TROP offers the advantage of return of premiums on surviving the maturity period. This feature makes TROP better than the term plan.

While purchasing TROP can seem to be a cakewalk for you, you will need to evaluate it further to make an informed decision. Below are some of the pointers you should think about:

• When purchasing the Term Insurance with Return of Premium option, insurers go a step forward by offering add-on covers and the existing policy. The add-on covers include personal accident, critical illness, permanent disability, among others. The additional premium you pay for the riders is not refunded at the time of maturity.
• As compared to the pure term insurance policy, the premium rate charged for TROP is exorbitant. For example, if a 30-year-old Mr. Amit purchases regular term insurance with cover of Rs. 1 crore, he pays a premium of nearly Rs.10,000 for 40 years. On the other, if Mr. Amit opts for Term Insurance with Return of Premium variant with the same cover, his premium will cost around Rs.28,000 yearly. In short, the person has to pay 18,000 more if he picks the TROP plan.
• The TROP plan includes the Paid-Up Value option, wherein the policy operates with reduced benefits if you fail to pay a premium for three years. However, the nominee will receive less sum assured if the policyholder has sudden death.

Buying the plan could be a win-win deal since it assures you to secure the lifestyle of your loved ones in your absence and promises to return premiums as a maturity benefit. Note that you shouldn’t buy a policy only based on maturity benefit. The decision to buy term insurance should be based on your requirements and your ability to pay the premium amount.

The information contained herein is generic in nature and is meant for educational purposes only. Nothing here is to be construed as an investment or financial or taxation advice nor to be considered as an invitation or solicitation or advertisement for any financial product. Readers are advised to exercise discretion and should seek independent professional advice prior to making any investment decision in relation to any financial product. Aditya Birla Capital Group is not liable for any decision arising out of the use of this information.