Some life insurance plans will pay you back while you’re still alive, which may surprise you.
Many people see life insurance as a method to ensure that their family would be financially secure if they die, and they are ready to pay the premium to have that safety net in place.
There are various sorts of plans but rarely discussed the term plan with return of premium. If the policy period expires and the insured person is still alive, you can have your premiums* returned to you with this form of coverage, which has a higher premium cost than term life insurance.
What is the return of premium life insurance?
A term life insurance plan with a return of premium, or TROP, is a type of term insurance policy. This term life insurance plan is particularly developed to meet the needs of insurance applicants. The term plan with return of premium plan, like any other regular term life insurance plan, provides financial protection to the insured’s family against any form of unforeseen occurrence throughout the policy period.
However, one distinguishing aspect of the term plan with return of premium plan that distinguishes it from normal term life insurance plans is that it provides the insured person with the benefit of the return of premium as a survival benefit if they survive the policy duration.
How Does Term Plan with Return of Premium Work?
Consider 10-year insurance with a cover of Rs.20 lakh and a monthly premium of Rs.2,000. If the insured dies, their family will receive Rs.20,000,000 (Sum Assured).
However, if the insured lives to the end of the term, the insurer would refund the whole premium amount, which is Rs.20,000 (Rs.2000×10).
A non-participating insurance plan is a term life insurance plan with a refund of the premium.
Reasons to Buy Term Insurance Plan with Return of Premium
A term plan with return of premium (TROP) is designed for consumers who wish to give financial stability to their loved ones while also reaping the benefits of returns. Term Return of Premium, as the name implies, provides both insurance coverage and a return of premium.
For starters, they provide peace of mind by giving financial protection to the family in the event of an unpleasant event. Second, the plan provides an assured premium return, which indicates that all premiums paid over the policy’s duration are returned to the policyholder.
Let’s look at the top reasons you should get a term life insurance plan with a return of premium coverage.
Term insurance with a return of premium provides a premium refund at the policy’s maturity. If the insured lives the whole policy term, they are eligible to collect the complete amount of premium invested in the plan at the end of the policy period. As a result, the plan is appropriate for investors who seek insurance coverage as well as the advantage of a premium refund at maturity.
A term plan with return of premium guarantees a return on the whole amount of premiums paid. The return of premium guarantee ensures that the insured individual will receive their money. Policyholders do not need to be concerned about their money not being repaid to them.
The term plan with return of premium plan includes the option of a rider benefit to supplement the policy’s coverage. Most insurance firms provide a variety of extra riders that insurance purchasers can choose from. These can be selected at the time of insurance purchase or added later. It is preferable to include riders like personal accident, physical disability, and so on when purchasing the policy since they provide full coverage right from the start of the term life insurance with return of premium plan, and at a very low additional cost.
Provides tax benefits under current tax regulations. The premium paid and the amount received are now tax-free under Sections 80C and 10 (10D) of the Income Tax Act of 1961. The tax exemption applies up to a maximum of Rs.1.5 lakh.
Features of Term Plan with Return of Premium
A term plan with return of premium, or TROP, differs from a standard term life insurance plan in that it provides a maturity benefit in the form of a premium return in addition to the death benefit. We have gone through the characteristics of the term plan with return of premium in great depth.
Survival Benefits or Maturity Benefits
The survival or maturity advantages provided by a term plan with a premium return are what distinguishes it from regular term life insurance. The insured individual does not get any survival or maturity benefits under a pure term life insurance plan. However, with a simple TROP plan, the insured receives all of their invested money as the plan’s premium, less any taxes.
The surrender value of a premium plan’s term plan return varies based on the payment choice. As a general rule, the surrender value is higher for single premium plans in which the whole premium for the policy is paid at the start of the policy period. Insurers will calculate the surrender value differently, and those looking into TROP plans should make sure they understand what they are receiving because the amount they may receive will most likely not be what they expect.
The amount guaranteed in term life insurance with return of premium plans refers to the life insurance cover provided by the insurer to the insured at the time of enrollment. A Term plan with return of premium provides a smaller sum guaranteed amount than pure term life insurance policies since the premium amount is repaid.
Wrapping It Up
There are numerous types of term life insurance plans available and a variety of life insurance policies. Many life insurance policies offer returns, but the returns are often market-linked and are not guaranteed.
You can use the lump-sum payment you get at maturity to purchase a car or refurbish your home. A clear picture aids in financial planning. A term plan with return of premium is preferable to standard term insurance. It is a perfect solution for customers who do not want to lose money on their premiums and want to see a return on their investment.