The ultimate goal of a person is to keep his family safe and secure. Being with the family is the biggest blessing. Investing in financial instruments helps one to acquire income security and create wealth for future goals. The top priority of every individual is to save the family members from unforeseen unfortunate events. Buying a life insurance policy is the most appropriate solution to fulfill such an objective. The best approach for such a purpose is term life insurance. Term life plan with return on the premium is a variant of term insurance plan that is designed to create a security shell for the family members of the insurance buyer in case of any mishappening also offers the survival benefit to the policyholder as return on premium if the policy holder survives the tenure of the policy plan.
What is a return of premium term life insurance?
Term plan with return of premium is similar to the term plan with a unique feature of reimbursement of your premium at the end of the policy tenure. The insurer pays the premium every year throughout the policy’s term. If you stay alive till the policy’s maturity, it will reimburse your premium payments as ‘survival benefits.’ TROP lowers the cost of the policy and offers substantial financial advantages. If the insurer survives the policy tenure, the policy pays the survival and death benefits to the beneficiary in case of the policyholder’s death. It is the prespecified amount for which you pay the premium.
How does a return of premium term insurance work?
Let us consider a person, Mr. Anand, who is 31, who purchased a TROP policy with a death benefit of ₹30 Lakhs cover for ten years, and the premium amount is ₹ 3000/- per annum. If the insurer passes away during the tenure of 10 years, then the beneficiary will get a sum assured of ₹30 lakh. But if the insurer survived the period, the insurance company will refund the entire premium paid by the insurer during the term, which is ₹ 30000/-.
Benefits of term insurance with return of premium
Opting for a suitable term plan with insurance with a return of premium is beneficial in the long run. Following are a few reasons that can influence one to purchase a suitable term insurance plan with a return of premium.
Maturity benefits in terms of refund- In the term plan with the return of premium, the policyholder, when surviving the tenure of the term insurance plan, gets the entire premium refunded by the insurance company. Thus, the policyholder gets back all the premiums he has paid. It serves as a rewarding deal to the policyholders who want insurance coverage with a money-back offer.
Assured return of premium
The policyholder need not worry about the return of premium as term insurance with return on premium ensures the return of the total premium amount paid by the insurer except for premiums paid for add-ons or any term insurance riders.
Tax benefit:
Similar to any other life insurance policy, term pan with return of premium also offers tax benefits. The premiums the insurer pays are eligible for tax deduction under section 80C of the Income Tax Act 1961. The premium received by the beneficiary in case of the insurer’s death is also tax-free under section 10 (10D) of the Income Tax Act.
Flexibility in choosing the policy term:
A term plan with a return of premium offers enough flexibility to the insurer to select the most suitable policy term as per the requirements. The choice of the period could be based on the term for financial goals and the insurer’s age. This flexibility allows the person to get the customized policy per their needs.
Cost-effectiveness:
A term plan with a return on investment is a cost-effective instrument offering more affordable than any other life insurance policy. The premium the insurer pays provides the life cover, and no other investment option exists.
Special features of term plan with return of premium
Premium payment options
TROP not only offers you the benefit of getting the premium back but also offers the flexibility to choose the premium payment options, which are as follows-
One Time payment:
Under this option, the entire premium is paid in a single go as a lumpsum amount.
Regular pay:
Under this option, the insurer pays the premium at every fixed interval during the policy term. The insurer can pay the installments yearly, half-yearly, quarterly, or monthly. Pay till 60 – By choosing this option, the insurer grabs the opportunity to pay off the premium till 60 years of age, and the policy can extend till 85 years of age.
Limited pay:
Under this option, the insurer can pay the premium for a fixed number of installments.
Affordability
On one hand, the premium paid off is returned at the time of maturity of TROP, while on the other hand, it is tax-free. Hence, it is one of the most affordable financial instruments.
Surrender value
If the insurer wants to surrender the policy at any point in time, then the person gets the surrender amount. It is subjected to the following conditions –
- For TROP with a single premium – THe surrender value is applicable after the single premium payment
- TROP with Limited pay and regular pay option is applied on the premium fully paid for two years.
End notes
Term plan with return of premium is an excellent option for those who want to keep dual objectives in the pocket, that is, the death and survival benefits.
