Term Plan with Return of Premium

Term insurance is a popular choice amongst insurance buyers. It is a simple plan that offers financial coverage for a certain period. Although a basic term insurance plan can be highly beneficial for most...Read More

Disclaimer:

Conditions for special exit value: options to receive all premiums paid back, at a specified point in the term of the policy(free of cost). Available when Return of Premium Variant is not chosen.

What is Term Plan with Return of Premium?

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Essentially, a term plan with return of premium is similar to a standard term plan. It works as a life cover and provides a death benefit to the beneficiaries of the policy.

The key element that sets it apart is the maturity benefit applicable on a term plan with return of premium.

Policyholders can benefit from a term plan with return of premium by paying an additional premium.

You can choose the required sum assured and policy period and pay the premiums, accordingly. When the policy matures, the insurance provider will return the premiums paid to the policyholder.

Usually, there are two kinds of policy buyers:

  • One who is looking for medium of savings along with life coverage
  • One who is only in need of life cover to provide financial support to their family in their absence.

Depending on your financial requirements, you can choose a suitable plan for your family.

How Does Term Insurance with Return of Premium Work?

It is in your best interest to map the objective of an investment carefully before buying a plan.

Understanding how a term plan with return of premium works will give you a clearer vision for your financial plans.

Let’s take the case of Mr. Patel, a 30-year-old man looking to secure coverage for himself. He is a healthy man, without any smoking habits or history of medical problems. He opts for a term plan with return of premium and selects a sum assured of Rs. 50 lakhs.

The annual premium payable for his plan is Rs. 12,718 for a tenure of 40 years, i.e. till the maturity of the policy. If Mr. Patel passes away within the policy tenure, the person assigned as the nominee will receive the sum assured of Rs. 50 lakhs.

But, if Mr. Patel survives the policy term, he will be eligible for a maturity benefit under the term plan with return of premium. He will receive Rs. 5,08,720 (12718 x 40) upon maturity of the policy.

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Who Can Buy Term Insurance with Return of Premium (TROP)?

When it comes to important financial commitments such as buying term insurance with return of premium (TROP) plan, each person may have different objectives. This is significantly dependent on a number of personal factors such as your age, income source, lifestyle habits and medical conditions. Analyzing your financial profile based on these key parameters can help you find the right policy.

So, if you plan to purchase a term plan with return of premium, you have to examine the benefits offered against such factors.

Largely, TROP can be a preferable choice for people who fall under the following categories:

  • Unmarried

    As an unmarried individual, you may have the financial responsibilities of your parents, especially if they are retired. If you have a term plan with return of premium, the maturity benefit ensures they receive a large sum of money either way.

    In the unfortunate case of your demise, their expenses will be taken care of with the death benefit. You will have the peace of mind that they will be financially independent even when you are not around. In the case of surviving the policy, you can have the satisfaction of receiving back the premiums paid throughout the TROP tenure.

  • Married with No Children

    If you are a married person, you may also want to consider a term plan with return of premium. In case your spouse is solely dependent on your income source, TROP may work for you. You can create a financial support system for them to secure their future against any eventualities. The maturity benefit offered at the end of the policy term will be a bonus.

  • Married with Children

    A parent has a broad set of financial responsibilities to undertake for the well-being of their children. Saving up for their marriage, higher education and other life goals is a crucial aspect of your investment plans. In case you are the only earning member of the family, your spouse’s and children’s well-being is also to be considered.

    It can be heavy on your pocket to manage the current expenses and put a large sum aside for the future. Therefore, the assurance of a maturity benefit with a term plan with return of premium can be helpful.

Benefits of Term Plan with Return of Premium

Benefits of Term Plan with Return of Premium

Let’s take a closer look at the benefits of a term plan with return of premium:

ROP Benefit

Many policy buyers are discouraged from buying a term plan because there is no maturity benefit. Introducing Max LifeSmart Secure Plus Plan ( A Non Linked Non Participating Individual Pure Risk Premium Life Insurance Plan| UIN104N118V02). a policy that offers option of a term plan with return of premium available as an alternative. The ROP (term insurance with return of premium benefit) allows policyholders to stay reassured.

Death Benefit

When a person buys a standard insurance plan or term plan with return of premium, the primary purpose is life cover. They wish to create a financial shield over their family against unpredictable circumstances.

The death benefit offered with TROP helps the policyholder’s family to manage their expenses during a crisis.

Tax Benefits

Purchasing a term plan with return of premium means makes a person eligible for tax benefits. You can avail of the benefits as per the prevailing tax laws. Under Section 80C and 10 (10D), the premium paid towards the term plan and the benefit amount are tax-free.

You can get a tax deduction of up to Rs. 1.5 lakhs on the premiums paid for a term plan with return of premium.

Why Should You Choose A Term Plan with Return Of Premium Option?

Given the increasing cost of living and responsibilities in life, each one of us is looking for ways to manage money efficiently. The financial instruments that offer an opportunity to build wealth and get life security can be an excellent choice to achieve that.

Term plan with return of premium option also provides additional benefits such as waiver of premium, accidental death benefit, disability benefit, and protection against critical illnesses. Investing in TROP can bring a sense of overall protection for policyholders.

A policy buyer may find it difficult to choose between the several insurance products available. Choosing on the basis of one deciding factor, whether it is cost or policy period may not be favourable. Hence, make sure to consider the comprehensive benefits of a term plan with return of premium to be satisfied with the investment.

Term Plan with Return of Premium Features

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1. Affordability

Term plan with return of premium may be slightly more expensive than a regular term plan. However, the premiums paid for TROP are returned as maturity benefit and are exempted from taxation.

2. Premium Payment Options

As the policyholder, you can choose the suitable sum assured under term plan with return of premium. Furthermore, you can also select the best-suited premium payment option from among these:

One-Time Payment

The entire premium for TROP is payable as a lump sum amount in one go, instead of distributing it over extended duration.

Regular Pay

Under this premium payment option for TROP, you pay premiums at regular intervals throughout the policy tenure. You can choose to pay them on an annual, half-yearly, quarterly or monthly basis.

Pay Till 60

This option under term plan with return of premium allows you to pay off the premiums till the age of 60 years, while the plan extends till 85 years of age.

Limited Pay

You can pay the premiums for a fixed number of instalments under the limited pay option for TROP. Please read sales brochure before proceeding for purchase.

3. Surrender Value

After purchasing the term plan with return of premium, if you discontinue premium payments or surrender the plan, you will receive a surrender value. The surrender value of TROP is subject to the following conditions, depending on the premium payment option:

  • For TROP with Single Premium variant, the surrender value is applicable after payment of a single premium.
  • For TROP with Limited Pay variant and Regular Pay variant, it is applicable on payment of premiums for two full years.

The surrender value is the higher of Guaranteed Surrender Value (GSV) or Special Surrender Value (SSV)

Why should you choose Max Life Term Plan?

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Solvency Ratio 202%

(Source: Public Disclosure)Company of the year*^*

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99.35%* Claims paid

Over 2 Lacs+ Users

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₹1,087,987 Cr. Sum Assured

In force (individual) (Source : Max Life Public disclosure, FY 20-21)

Return of Premium Option with Limited Pay

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Single Pay

You pay the entire premium amount payable as a lump sum in one go

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Regular Pay

You pay the premium amount throughout the term plan tenure either annually, half-yearly, quarterly or monthly

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Pay Till 60

You pay the premium till the age of 60 years while the plan coverage extends up to 85 years of age

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Limited Pay

You pay the premium for a fixed number of instalments, i.e., 5 Pay, 10 Pay, 12 Pay or 15 Pay

FAQs

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Compared to traditional term insurance plans, a Term with Return of Premium option (or TROP) offers to pay back the total amount of annualised premium {Exclusive of taxes^}, upon maturity of the coverage period. This is the most obvious pro of the TROP feature. The fact that you get your money back if you survive the policy tenure makes the return of premium plans especially appealing to people who want insurance coverage but have a low-risk tolerance.

Moreover, you can also avail of a host of other policy benefits such as protection against accidental death and dismemberment, critical illnesses, and tax benefits (both deductions and exemptions). Thus, the term plans with return of premium option are definitely worth their price.

Pure term insurance plans provide significant financial support to your grieving family, should anything happen to you. But these plans do not offer any maturity benefits, i.e., if you were to outlive the term insurance coverage period, you do not receive anything on policy maturity.

Term life insurance plans with Return of Premium (or TROP) pays back the total amount of annualised premium {Exclusive of taxes^} paid towards the policy as maturity benefit if you survive the policy tenure. At the same time, if anything were to happen to you, the return of premium plan provides the Sum Assured to your family.

Generally, most of the Life insurance companies in India offer term insurance plans with return of premium benefits.

While you may compare online which plan suits you the best. Some of the benefits of taking Term Insurance plans from Max Life are:

  1. Significant financial protection against life’s uncertainties
  2. Maturity benefits upon surviving the policy tenure
  3. Protection against critical illnesses, accidental death and dismemberment
  4. Multiple channels for a seamless buying experience
  5. No bulky paperwork while buying or paying premiums for policies online
  6. Dedicated claim settlement officer to make the claim process effortless
  7. Multiple premium payment channels, including net banking, digital wallet, credit cards, and debit cards

* the coverage amount that you can opt for may vary depending upon several factors such as your age, annual income, coverage tenure, and premium payment term.

Term insurance plans with return of premium option offers policy benefits if anything happens to you within the policy period as well as upon surviving the policy. The major benefits are

    1. In case of your unfortunate demise, your family would receive a significant financial assistance in the form of the death benefit from the Term insurance plans with Return of Premium Option.
    1. Upon surviving the policy term, you would receive the total amount of premiums back that was paid towards the term insurance plans with return of premium option. It does not include the premium paid for riders during the policy tenure.
    1. You can avail tax benefits4 for the premium paid under Section 80C of the Income Tax Act 1961
    1. The death benefit paid to nominee(s) is tax free and maturity benefit received under the Term insurance plans with return of premium option is tax-exempt under Section 10(10D) of the Income Tax Act 1961

You can also enhance your financial protection by opting for Add-ons/Riders (upon payment of the additional premium) against accidental death, life-threatening ailments etc.

Max Life Insurance offers the below term life insurance plan with return of premium option – Max Life Smart Secure Plus Plan (A Non-Linked Non Participating Individual Pure Risk Premium Life Insurance Plan UIN - 104N118V02)

There is no catch as such with the Term insurance plans with return of premium option. On the contrary, the Term insurance plans with return of premium option offers financial assistance in case of your untimely demise within the policy tenure. Moreover, these plans also offer to pay back the 100% of the Total Premiums that you pay towards the plan in case you outlive the coverage term.

‘Total premiums paid plus underwriting extra premiums, if any, for base policy’ refers to the total of all annualised premium paid plus underwriting extra premium, if any, under the policy including premiums for Life Stage Add on Sum Assured (if any)

Yes, you must purchase Term insurance plans with return of premium option if you require a significant amount of financial protection for your loved ones but have a low-risk tolerance when it comes to putting your money into term insurance. Unlike pure term insurance plans, Term insurance plans with return of premium option provides both death and maturity benefits, so that you and your loved ones can benefit from the plan.

Yes, term insurance plans with return of premium benefit offer to pay back the total amount of annualised premiums paid {Exclusive of taxes^} once you outlive the coverage tenure. In other words, if nothing happens to you throughout the term insurance policy period, you will receive the entire amount (exclusive of taxes) that you have paid for the plan.

Illustration – Suppose you bought a term insurance plan with a return of premium option for a Sum Assured of Rs 1 crore at a premium of Rs 25,000 per annum (Exclusive of GST)* with a policy term of 30 years. In the case of your demise within 30 years of buying the policy (i.e., the policy period), your family would receive the Sum Assured of Rs 1 crore.

However, if you survive the policy term of 30 years; you will receive Rs. 750,000 (25000 x 30) {Exclusive of taxes^} as maturity benefit from the plan.

Figures mention in the above illustration are assumed.

Return of premium benefit offered under term insurance plans implies that the insurance company would pay back the total amount of annualised premiums {Exclusive of taxes^} once you survive the coverage tenure. In other words, if nothing happens to you throughout the policy period, you will receive the entire amount you have paid as premiums (exclusive of taxes and amount paid towards rider) in the form of maturity benefit.

Suppose you purchased a term insurance plan with a return of premium option for a Sum Assured of Rs 1 crore and pay a premium of Rs 20,000 per annum (inclusive GST)* with a policy term of 30 years. In the case of your unfortunate demise within 30 years of buying the policy (i.e., the policy period), your family would receive the Sum Assured of Rs 1 crore.

This Sum Assured which is paid to the family/nominee(s) in the event of death of the life insured is the death benefit under the return of premium term plan.

Figures mention in the above illustration are assumed.

Purchasing a Term insurance plans with return of premium option or TROP plan is a good deal, especially when you consider the amount of coverage the plan would provide to your family, should anything happen to you.

In case of your untimely demise, the Term insurance plans with return of premium optionwill provide the financial protection to your loved ones, like any regular term plan. The insurance amount received as death benefit is tax-free.

Not only that, in case you survive the policy tenure the total amount of premiums paid {Exclusive of taxes and exclusive of amount paid towards riders} ^ would be returned to you on Policy Maturity. This maturity amount is tax-exempt under Section 10(10D) of the Income Tax Act, 1961.

Yes, policyholders can strengthen the coverage offered by TROP by adding riders of their choice. Different types of riders can be added depending on the personal requirements to get comprehensive coverage.

Term plan with return of premium, like other insurance plans is a long-term protection tool. The entry age in general for this plan is 18 years.

The premium rates may vary for a smoker and a non-smoker since the insurer is providing coverage for risk. A person with smoking habits comes under the high-risk category.

It can be favourable to opt for a term plan with return of premium since it offers maturity benefit along with death benefit. Nevertheless, it is up to you to assess your financial requirements and purchase accordingly.

The grace period in insurance is the period after the due date of premium payment when the policyholder can pay it without any penalties. Generally, the grace period for a term plan is 30 days, but it is 15 days if the premiums are being paid monthly.

ARN: PCP/TPROP/090322

Sources:

www.nsiindia.gov.in/InternalPage.aspx?Id_Pk=89

www.nsiindia.gov.in/InternalPage.aspx?Id_Pk=55

www.indiapost.gov.in/Financial/pages/content/post-office-saving-schemes.aspx

www.nsiindia.gov.in/InternalPage.aspx?Id_Pk=134

www.incometaxindia.gov.in/Pages/tools/deduction-under-section-80c.aspx

www.rbi.org.in/Scripts/NotificationUser.aspx?Id=11865&Mode=0

www.rbi.org.in/Scripts/FAQView.aspx?Id=79
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