We all want to secure our families and ensure their financial well-being in our absence and therefore we invest in a term insurance plan which provides a death benefit to the family after the death of the insured.
However, there is no survival benefit offered in a pure term plan in case the insured outlives the term of the plan. A term plan with a return on the premium (TROP) is a type of term plan which provides the survival benefit to the insured. It provides all the benefits of a term plan with a premium refund on maturity.
What is a Return of Premium Term Plan?
A return of premium term plan is nothing but a pure term plan with a guaranteed return of premium as a maturity benefit. It has a higher term insurance premium because of the guaranteed return. It also provides additional benefits like premium waiver, critical illness protection, disability benefit, and accidental death benefit. It offers the benefit of insurance coverage as well as a return of premium on completion of the term of the plan.
Features of a Term Plan with Return of Premium
- Lower Value of Sum Assured:
The value of the sum assured or the life insurance cover in a return of premium term plan is lower because the premium you pay is refunded at the time of maturity.
- Death Benefit:
Under this plan, the total sum assured is paid to the nominee as the death benefit, if the insured dies during the policy term. The sum assured is different for different insurers. It varies according to the coverage selected.
- Maturity or Survival Benefit:
This is where it is different from a standard term plan. It provides a maturity or survival benefit on completion of the term in case the insured outlives the term of the policy. The insured gets all the premiums paid back as a maturity benefit.
- Paid-Up Value Benefit:
An additional benefit, called paid-up value benefit is provided under the term plan with a return of premium. If a policyholder is not able to pay the premium, he can still continue to get lower coverage under the plan. The paid-up value benefit is applicable only if the insured has paid the premium for a specified minimum period as decided by the insurer.
- Surrender Value:
The surrender value of the plan depends on the payment option a policyholder selects. For a single premium plan, this value is more because the policy premium is paid one time at the beginning of the policy. Different insurers have different ways to calculate the surrender value.
- Rider Benefits:
The return of the premium term plan offers many rider benefits in addition to the principal cover. These benefits include critical illness cover, hospital cash coverage, and accident or disability cover.
Benefits of a Return of Premium Term Insurance Plan
Following are some reasons why you should choose a return of premium term plan:
- The policyholder doesn’t lose the premium paid over the years in case he survives the policy tenure. He gets the term insurance premium back as the maturity benefit. It provides the combined benefits of a life cover with savings.
- It provides guaranteed returns on the total amount of premium paid, which does not include an additional premium for riders if any.
- It provides a variety of premium payment options to the policyholder like monthly, yearly, or one-time payments.
- The paid-up option makes this plan feasible for individuals who do not have a fixed income or are not earning.
- It offers tax benefits as per tax regulations.
- It is a non-participating plan which gives death benefit options of either lump sum protection as a single pay-out or income protection as a monthly pay-out.
The return of the premium term plan does not only provide future financial security for your family but also offers long-term maturity benefits in case the insured survives the term of the policy. Before you invest in a term insurance plan with a return of premium, carefully understand the policy and check whether it matches your requirements in the long run.