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- How Term Insurance with return of premium works
- Premium payment options for Term Insurance with a return of premium
- Should you consider purchasing TROP?
- Who can buy Term Insurance with a Return of Premium?
- Key advantages of Term Insurance with Return of Premium
- Difference between Term Plan with Return of Premium and Pure Term Insurance
- Steps on buying Term Plan with Return of Premium
- Key Takeaway
- FAQS - FREQUENTLY ASKED QUESTIONS
Securing your loved ones' financial futures is crucial, especially during unexpected events. But what if something happens to you during a critical phase?Your savings would go to waste, burdening your family. That is where a Term Insurance plan with a return of premium comes in. It combines financial protection for your family with a unique feature: if you do not make a claim, you get all your premiums back! It is like a reward for staying healthy and protected. Also read: What are the benefits of Term Insurance with Return of Premium?
How Term Insurance with return of premium works
Term Insurance with Return of Premium (TROP) is a policy that is suitable for individuals of all life stages. The key feature that separates TROP from regular Term Insurance is the inclusion of a survival benefit.For example, let's say you purchase a TROP with a coverage of ₹ 30 lakhs for 10 years, with an annual premium of ₹ 3,000. In the unfortunate event of you passing away during the term, your nominee would receive the ₹ 30 lakhs as a death benefit. However, should you survive the policy term, you receive the entire premium as a maturity benefit. So, after the 10-year term, the insurance company will return ₹30,000 (₹3,000 x 10) to you. It is a win-win!
Premium payment options for Term Insurance with a return of premium
You can pay premiums for Term Insurance with a return of premium (TROP) through flexible options. You can make a single upfront payment or choose to pay premiums yearly.If you decide to terminate the policy before completing the term, the company will refund the amount you have paid without any charges. This gives you the freedom to make changes without the fear of losing your investment.Furthermore, if you continue the policy without making annual payments, a portion of the premium amount will be held back when you make a claim. The specific percentage could vary depending on the policy. So, it is crucial to thoroughly understand the terms before deciding.
Should you consider purchasing TROP?
Recent industry reports show a steady increase in the demand for Term Insurance with Return of Premium (TROP) in the insurance market. Over the past five years, there has been a significant surge in the number of individuals choosing this policy. This trend can be attributed to its unique benefits, such as refunding premiums upon survival.Moreover, TROP has gained popularity among the younger generation, particularly millennials, who prioritise financial security and seek to secure their future without compromising potential returns. The assurance of receiving premiums back acts as a strong motivator to invest in TROP, as it provides a safety net for their loved ones while also serving as a savings tool.Insurance companies have responded to this growing demand by introducing innovative features and flexible payment options in TROP plans. They understand the need for customisation and tailor their offerings to cater to different customer preferences. Additionally, using technology, such as online platforms and mobile applications, has streamlined the application and approval process, reducing the hassle and time involved.
Who can buy Term Insurance with a Return of Premium?
Term Insurance with a return of premium is a flexible insurance option for everyone. For instance, the following types of individuals would benefit from this policy.
Single individuals
Unmarried individuals generally have fewer financial responsibilities, especially during the early years of their lives. However, they may still have to fend for their parents or handle certain household expenses. In such cases, opting for TROP allows them to have life coverage during the policy term and get a refund of the premiums paid if they survive the policy term.
Married individuals
Married people without children may consider TROP a suitable option, especially if one individual is financially dependent on the other. The policy provides financial protection to married couples in case of their untimely demise. If they survive the policy term, they receive the return of the premiums paid.
Married individuals with children
Parents with children are responsible for securing their family's financial future. TROP can be attractive for them since it offers life coverage and a premium refund if they outlive the policy term. This ensures their family receives a financial safety net during the policy term.
Key advantages of Term Insurance with Return of Premium
Premium refund
TROP ensures a refund of the premiums paid if the policyholder survives the term. You receive the entire premium amount at the end of the policy.
Death benefit
Like regular Term Insurance , TROP offers a death benefit where the nominee receives the assured sum in case of the policyholder's demise during the term.
Tax benefits
Premiums paid for TROP are eligible for tax deductions under Section 80C of the Income Tax Act, providing potential tax savings.
Flexibility in premium payment
TROP offers different payment options, including single premium, regular premium, and limited premium payment. You can choose a payment mode that suits your financial situation.
Continuity with paid-up value
TROP policies may include a paid-up value feature, ensuring the policy continues even if you cannot pay the premium after a certain period. This feature helps maintain coverage despite temporary financial difficulties.
Endorsement under MWPA
TROP policies can be endorsed under the Married Women's Property Act (MWPA), protecting the spouse and children in case of the policyholder's demise.
Policy surrender
TROP policies allow you to surrender the policy before the term completion. This enables discontinuation, if needed, with a surrender value based on the terms and conditions.
Period & age benefit
Term Insurance with a return of premium has a limited term ranging from 10 to 30 years, with most plans having a maximum maturity age below 70 years.While Term Insurance with a Return of Premium has its advantages, it is essential to consider the following factors before purchasing a TROP plan:
Additional covers
TROP plans often offer add-on covers like Personal Accident, Critical Illness, and permanent disability. However, note that the premium paid for these riders is non-refundable upon policy maturity.
Premium comparison
TROP plans typically have higher premium rates than regular Term Insurance. For example, a 30-year-old individual named Mr Amit opting for a regular Term Insurance plan with a coverage of ₹1 crore would pay around ₹10,000 per year for a 40-year term. In contrast, the TROP variant with the same coverage would amount to approximately ₹28,000 annually, resulting in an additional expense of ₹18,000 annually.
Paid-up value option
The TROP plan offers a paid-up value option, allowing the policy to continue with reduced benefits if the premium is not paid for three years. However, in the event of the policyholder's demise, the sum assured received by the nominee will be lower.In conclusion, Term Insurance with Return of Premium is worth considering for the reasons mentioned. If you can afford the slightly higher premium without straining your budget, opting for this type of insurance might be a viable option for you.
Difference between Term Plan with Return of Premium and Pure Term Insurance
| Aspect | Term Plan with Return of Premium | Pure Term Insurance |
| Premium Payment | Higher premiums due to the return benefit. | Lower premiums for pure life coverage. |
| Maturity Benefit | Returns premiums paid if policyholder survives. | No maturity benefit; coverage ends at the policy term. |
| Purpose | Combines insurance and savings elements. | Focuses solely on providing life coverage. |
| Investment Component | Acts as a forced savings plan with guaranteed returns. | No investment element; premiums go entirely towards coverage. |
| Coverage | Sum assured is comparatively lower in TROP | Sum assured is typically 10 times the annual premium paid, which is comparatively higher than that offered in TROP |
| Flexibility | Limited flexibility; fixed premium and term. | Flexible options to choose policy duration and coverage amount. |
| Premium Refund on Surrender | Partial refund available if surrendered before term completion. | No refund; policy surrender terminates the coverage. |
| Overall Cost | Costlier due to the premium refund feature. | More affordable as it concentrates on pure risk coverage. |
Also read: Why you should choose Term Plan with Return of Premium option
Steps on buying Term Plan with Return of Premium
Research and compare
Research various insurance providers offering TROP policies. Compare their features, benefits, claim settlement ratio, and premiums.
Assess your coverage needs:
Determine the coverage you require based on your financial responsibilities, expenses, and future goals.
Choose policy term:
Select the policy term that aligns with your financial planning.
Online or offline:
You can buy TROP policies online or offline. Online platforms often offer more convenience and may have additional benefits.
Fill in form details:
Provide the required information, including your age, occupation, income, medical history, and nominee details.
Submit documents:
Upload or submit the necessary documents, which may include identification proof, address proof, and income proof.
Take a medical test (if required)
The insurer may ask for a medical examination depending on your age and sum assured.
Review and pay:
Review the policy details and coverage. If satisfied, proceed to make the premium payment online through various payment modes. Your policy will become active once your insurer approves the application.
Key Takeaway
- TROP, also known as Term Insurance with a return of premium combines the benefits of regular Term Insurance with a refund of premiums upon survival at the end of the policy term.
- TROP provides financial protection for your family in case of your demise during the policy term, and if you survive the term, you receive the entire premium amount back.
- Premium payment options for TROP include a single upfront payment or yearly payments.
- TROP has gained popularity due to its unique benefits, such as premium refunds and financial security, especially among the younger generation.
- TROP offers advantages like tax benefits, flexibility in premium payment, continuity with paid-up value, endorsement under MWPA, policy surrender option, and limited term periods.
- Considerations for TROP include additional covers with non-refundable premiums, higher premium rates compared to regular Term Insurance, and reduced benefits in case of non-payment of premiums.
- TROP provides a win-win scenario by offering financial protection and potential savings through premium refunds.
FAQS - FREQUENTLY ASKED QUESTIONS
How does Term Insurance with Return of Premium work ?
When you opt for TROP, you choose a policy term during which you will be covered. In the unfortunate event of your demise within this term, your nominee will receive the sum assured as a death benefit. However, if you survive the entire policy term, you will receive the total amount of premiums paid during the coverage period as a maturity benefit.
What are the benefits of Term Insurance with a Return of Premium ?
TROP offers several advantages. Firstly, it provides financial protection to your loved ones in case of your demise during the policy term. Additionally, if you outlive the policy term, you get back the premiums you paid, making it a cost-effective option. This is especially beneficial if you require life cover and want to ensure a return on your investment.
Who should consider Term Insurance with a Return of Premium ?
TROPs are suitable for individuals who seek Life Insurance coverage for a specific period and want to receive their premiums back if they survive the policy term. If you are looking for a combination of protection and savings, TROP can be a viable option for you.
Can I customise my Term Insurance with a Return of Premium ?
Many insurance providers offer flexibility in choosing the policy term and sum assured according to your specific requirements. You can select a term that aligns with your financial goals and the duration for which you need coverage. It is advisable to carefully assess your needs and consult an insurance advisor to determine your best plan.
Are there any drawbacks to Term Insurance with a Return of Premium ?
While TROPs provide the benefit of premium return, they tend to have higher premium rates compared to traditional Term Insurance plans. Additionally, if you decide to discontinue the policy before the completion of the term, you may receive a reduced amount or no refund at all. It is essential to understand the terms and conditions of the policy before making a decision.
How do I choose the right Term Insurance with a Return of Premium ?
To choose the right TROP, consider factors such as the insurance provider's reputation, premium rates, claim settlement ratio, and policy features. It is also crucial to evaluate your financial goals, the duration of coverage required, and your budget. Conduct thorough research, compare different options, and seek professional advice to make an informed decision.
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.
