Term Plan with Return of Premium: Are They Worth the Hype?

 

Term insurance is one of the best financial tools available in this era when budgeting your expenses is a priority. Life is full of surprises; therefore, it is necessary to keep any measures handy for financial security.

Term insurance is a form of life insurance policy that is more affordable and provides coverage for a certain period. This is a beneficial policy plan for more than one reason, as you can choose the variables such as sum assured, premium rates, premium frequency, and policy tenure. You can also opt for additional term insurance riders, much like a general life insurance plan.

Aside from the basic parameters of your policy, you can also choose to receive bonus income from your term insurance plan or term insurance riders. Additionally, you can even choose a term plan with return of premium.

What is a term plan with return of premium, and how does it work?

Most term insurance plans offer only death benefits. This is because the term is specified for shorter life spans most of the time, and the premium is much lower. However, if you opt for a term plan with return of premium, you get your entire invested money back after the term insurance matures.

Let’s simplify this with an example.

Suppose Arjun gets a term insurance plan with a 1 crore sum assured for a tenure of 30 years. He gets to choose his premium, and for the purposes of this example, let’s say it is INR 20,000 paid annually for 30 years. He also opts for term insurance riders such as chronic illness.

Given the above parameters, here are some scenarios that would apply to Arjun:

1. He pays the premium annually for 20 years, then passes away in a car crash. Arjun’s family would receive the sum assured of 1 crore in its entirety as a death benefit, and the policy would be terminated.
2. Arjun falls victim to a chronic illness, for which he already has term insurance riders. He would then receive either a specified amount back or the entire sum assured as per the specifications in his term insurance policy and the plan would be terminated at that point, even if Arjun lives.
3. Arjun had a term insurance tenure, which was an endowment plan. In that case, Arjun and his family benefit from regular bonuses paid over the years on a monthly, quarterly, or annual basis based on the specifications of their term insurance agreement.
4. Arjun had a money-back term insurance plan specifying that he would receive a portion of his premium every 10 years up to INR 50,000. Arjun would receive INR 50,000 at the end of the 10th year and again after the end of the 20th year. At the end of the 30th year, when Arjun’s plan matures, he will receive the remaining INR 5,00,000, which he will pay in premiums based on the specifications of his policy. However, if Arjun passes away in the 25th year of his tenure, his family would receive INR 1 crore, regardless of the INR 1 lac paid as money-back during his life span.
5. Now, if Arjun survives the entire 30 years of his tenure but does not opt for term insurance riders or a term plan with return of premium, then he wouldn’t receive any money. However, if he made the smart choice of opting for a term plan with return of premium, also known as TROP, he would receive the INR 6,00,000 that he paid over 30 years once the policy matures.

Of course, all the amounts are for example purposes only and would be subject to taxes paid. Regardless, Arjun would have made the smarter choice by opting to get his money back at the end of his term insurance tenure.

What we learn from the above example is that a term plan with return of premium is more or less like a savings account that pays you your money back after the tenure of your policy matures. You receive a large sum of money that you can further invest or purchase another life insurance plan to secure the future of your family.

Why term plan with return of premium is worth the hype?

When opting for life insurance plans, you may feel overwhelmed by the premium rate. Even though term insurance premiums are reasonable, they are still huge chunks of money you pay the insurance provider. In return, they provide financial security for your family in case of untimely and early demise.

Life is precious, and having you around is much more valuable to your family than the money they receive. So, if there is a way to get your investment back through endowment plans, ULIPs, money-back plans, or the most popular term plan with return of premium, then it is worth it.

Think of it this way. Throughout the insurance tenure, you religiously pay the premiums. Now, if an unfortunate death does befall you, your family or loved ones won’t be stranded. Instead, they can claim the benefits of term insurance to help plan their finances, pay bills, and even settle debts and mortgages if required. However, if you survive the tenure of your term insurance policy, you receive a huge sum of money that wasn’t exactly part of your financial plan.

You can use the aggregated returns on your premium to plan further for your loved ones or invest wisely to keep receiving larger sums of money. Your money invested in premiums doesn’t feel like a total waste. Additionally, if you have term insurance riders that aid in receiving further benefits when your policy matures, that’s even better. Furthermore, the premiums paid are tax deductible, therefore making it a win-win situation.

Conclusion

A term plan with return of premium is an incredible plan that secures your future and that of your loved ones. You get to enjoy the fruits of your labour in your lifetime. It is completely worth the hype.
You can conjugate the base plan with appropriate term insurance riders. In the case of disability, if you have the waiver of premium rider along with TROP, you pay much less premium, and you get the money back when the policy matures. It is a welcome influx of funds.