A Term Plan with Return of Benefits is a type of regular term plan which offers maturity benefits.This means all the premium amount is paid back in case the policyholder survives the policy term. At an additional premium cost,compared to regular term plans, these plans offer dual benefits under a single term plan. Although regular term plans offer life insurance & death benefits, return of premium plans offer life coverage, death benefits, & maturity payments.
As it is different from a regular term plan, let us now understand how it works:
- Policy Purchase
The policyholder, after deciding to opt for a return-of-premium plan, decides on the amount of sum assured, tenure of policy, premium payment frequency, etc. The premium in the case of TROP is on the higher side in comparison to a regular plan.
- Premium Payment
The policyholder is required to make payments towards the premium amount according to the decided frequency, i.e. monthly, quarterly, semi-annually, or annually.
- During the Policy Term
In case the policyholder dies during the policy tenure, the amount of sum assured will be paid to the beneficiaries as a death benefit, after which the policy will be terminated.
- Survival of the Policy Tenure
In case the policyholder survives the plan, he will receive the entire premium back that has been paid throughout the policy tenure. This feature makes it different from a regular term plan, where no survival benefits are received.
- Maturity
The policy will terminate in case the policyholder survives the plan, i.e. after maturity.
Reasons to Buy a Return of Premium Term Life Insurance
Provided are the reasons to buy a return of premium term life insurance:
- It will help achieve the financial objectives, irrespective of unforeseen circumstances, like terminal illness or death.
- It helps provide financial protection along with unique options for coverage.
- It allows for breaking premium payments into smaller ones, such as monthly, quarterly, semi-annually, or annually, rather than in one large payment.
- By providing a variety of payout options, you can customise the plan according to your future financial obligations.
- It offers coverage for up to 99 years of age.
- It offers flexibility by adjusting the sum assured according to your life stage.
Eligibility Criteria
Provided is the eligibility criteria to buy a return-of-premium term life insurance plan:
- The minimum age of an insured can be 18 years.
- The maximum age of an insured can be 65 years.
- The health & income parameters should be met by the insured.
- The rates are lower for non-smokers & individuals with a healthy lifestyle in comparison to smokers & those with unhealthy lifestyles.
- The policy tenure can range from 10 to 30 years.
Pros & Cons of Return of Premium Term Life Insurance Plan
Provided are the pros of the return of premium term life insurance plan:
- In case the insured survives the policy, the entire premium amount is refunded.
- Enjoy tax benefits under section 80C & 10(10D) of the Income Tax Act, 1961.
- The death benefits would be paid to the policyholder’s beneficiaries in the event that the policyholder dies during the policy tenure.
- The premium amount remains constant throughout the policy tenure, making it easy for the insured to prepare the required funds.
Provided are the cons of the return of premium term life insurance plan:
- These plans demanda high premium amount.
- Sometimes, the interest factor is not accumulated in the death benefit, i.e., the return benefit received by the policyholder uponthe plan’s maturity.
- This benefit can only be availed if the policyholder survives the plan & does not die during the policy tenure.
- In case the policy lapses, the death benefit will not be paid to the policyholder’s beneficiaries.
Steps to Buy a Term Plan with Return of Premium
Provided below are the steps to buy a term plan with a return of premium plan:
Step 1:Visit the website of the insurance provider company.
Step 2:Select the option “Term Insurance with Return of Premium”.
Step 3:Provide the necessary information, including age, name, date of birth, location, & contact details.
Step 4:Provide some additional information, such as smoking habits, annual income, educational details, occupation, etc.
Step 5:Provide the desired amount of coverage, policy tenure, & premium payment term depending on the selection & suitability.
Step 6:Select the Term Plan with the return of premium option.
Step 7:Select the additional riders, if needed.
Step 8: Get through the medical check-up formalities, if required.
Step 9: Make the payment of the premium to submit the proposal.
Step 10: The proposal form would be underwritten by the insurance company,&the policy would be issued, provided all requirements are fulfilled.
Things to be considered Before Choosing the Best TROP
Provided are the things to be considered while buying the best term insurance with Return of Premium:
- Assess your budget before buying this plan, as it comes with higher premium rates. The premium rates are higher due to the return facility of the premium amount in case the policyholder survives the policy tenure.
- Before finalising this plan, also evaluate other plans available that might come with additional suitable benefits, such as higher returns or lower premiums, etc.
- A life insurance plan primarily provides financial security to the insured & their family members. Evaluate whether the offered coverage fulfils the needs of life insurance.
- Consider the compatibility of TROP with the long-term financial plans that well align with the future financial obligations.
- Review the claim settlement ratio of the insurance provider company to assess its efficiency. The higher the claim settlement ratio (CSR), the more reliable the insurance provider is considered to be.
- Evaluate the cost-benefit analysis to determine whether purchasing additional riders, such as accidental death riders & critical illness riders, is worthwhile. These additional riders enhance the value of your plan, but at an additional cost.
Conclusion
Regular term plans do not offer any survival benefits; therefore, if you want to make an investment where you will be paid back, TROP is the best choice. Though it doesn’t offer a high return amount, only the base premium amount paid earlier is returned.
