The basic idea behind term insurance is to provide financial protection to your family members in the unfortunate situation of your demise. However, many insurance companies have introduced a term life insurance, which returns your premium amount when you survive the policy. Such plans are called as a Term Plan with Return of Premium Option (TROP).
Before purchasing a term plan with return of premium benefits, let’s first try and understand what a TROP is in detail:
What is TROP?
Under TROP, you are offered with the same term insurance benefits like a regular term plan. However, the only difference is that you can get back the entire premium if you survive the policy. For instance, if you’ve paid a total premium of Rs. 30,000 p.a. (excluding tax) for coverage of Rs. 1 crore for 30 years, you are eligible to receive Rs. 9,00,000 (30,000 x 30) at the end of 30 years.
If you die during the policy tenure, your family will get the sum assured. However, they won’t receive any return of premium paid by you.
On the other hand, if you survive the policy term, your insurer will return your entire premium amount. In some cases, you will also receive returns on the paid premium.
The other type of term insurance is a regular policy where you pay premiums every year. But you cannot get any of the paid premiums back if you survive the policy.
Since both these plans are term plans only, you might often get confused about which to buy. Therefore, let’s understand the difference between these two with the help of an example:
Suppose you are a 30-year-old individual. You have opted for a sum assured of Rs. 1 Crore for a policy tenure of 30 years. Here’s how your term plan will look with and without a return of premium option:
With the return of premium:
- Your premium could range between Rs. 22,000- 24,000 (including GST)
- Your survival benefit might range between Rs. 7 Lakhs to Rs. 8 Lakhs
Without the return of premium:
- The premium amount could range between Rs. 9,000- Rs. 9,700 (including GST)
Death benefit:
The death benefit remains the same for both types of term insurance. In case of your demise during the policy period, your beneficiaries will receive a sum assured value of Rs. 1 Crore.
Survival benefit:
In regular term plans, you will not receive anything in return on the survival of the policy. However, in case of a TROP, you would get the entire amount of premiums paid by you over the policy period.
Now, the question is, what policy is suitable for you? To know which policy you should select, we’ve listed down which policy is worth your money:
- What is the return?
Under a term policy, your family will get a death benefit. As highlighted above, the premium for a TROP policy is much higher compared to regular term insurance. You could buy a regular term insurance and invest the remaining amount in a safe investment product like a PPF. With PPF, the money will belong to your family in your absence, while they will also get the payout from the term insurance.
- Is surrender a problem?
There might be times when you purchase a policy for 30 years, and you won’t require coverage after 30 years. If you own a regular term plan, you can stop paying the premium in case you no longer need the policy. Under TROP, you need to surrender the policy. On surrendering, you will receive a specific percentage of your premium.
Conclusion:
As highlighted above, a term plan is a much better choice than TROPs. It is the purest form of insurance to cover your family in the long run. Therefore, buy term insurance to ensure the financial security of your loved ones.
