Term Insurance is a reliable way to ensure your family’s financial security. As the primary breadwinner, you have significant responsibilities towards your spouse, children, and possibly your parents. Should you pass away unexpectedly, these responsibilities may remain unfulfilled. By investing in term life insurance, you can secure your family’s future. The appeal of term insurance lies in its simplicity and affordability.
However, there is a notable drawback to traditional term plans: if you outlive the policy term, there is no payout. After paying premiums for several years, you receive nothing back, which can be disheartening. But there is an alternative that may interest you—Term Insurance with a Return of Premium (TROP).
What is TROP or Term Insurance with Return of Premium?
TROP is a type of term insurance that provides financial protection to your family in the event of your death during the policy term and also returns the premiums if you survive the term.
TROP plans seem appealing because they offer more than regular term plans. But is it truly beneficial? Let’s examine the features.
Features of a Term Plan with Return of Premium
A TROP, or Term Return of Premium plan, offers a unique advantage over regular term insurance by returning the premiums paid if the policyholder survives the term. Here’s an overview of its features:
- Premium Return: The standout feature of a TROP is the refund of all premiums paid if the policyholder outlives the policy term, offering a survival benefit.
- Death Benefit: Like standard term plans, a TROP provides a death benefit to the nominee if the insured person dies during the policy term.
- Policy Term: The policyholder can select the policy term, usually ranging from 10 to 30 years or more, based on their needs.
- Premium Payment: Premiums for TROP plans are typically higher than regular term plans due to the return of premium feature. Payments can be made annually, semi-annually, quarterly, or monthly.
- Riders: TROP policies often allow additional riders for enhanced coverage, such as accidental death, disability, or critical illness riders.
- Tax Benefits: Like other life insurance policies, TROP plans may offer tax benefits on the premiums paid and the return of premiums, subject to prevailing tax laws.
- No Maturity Benefits: Other than the premium return, TROP plans typically do not offer additional maturity or survival benefits.
A TROP plan is suitable for individuals who want life coverage and also prefer getting their premiums back if they survive the policy term. However, due to higher premiums, it’s important to evaluate whether the return justifies the additional cost.
How Does Term Plan with Return of Premium Work?
A Term Plan with Return of Premium (TROP) operates slightly differently from a standard term plan. Here’s how it functions:
- Policy Purchase: The policyholder selects a TROP plan, determines the sum assured, policy term, and premium payment frequency. Premiums for TROP plans are generally higher than those for standard term plans due to the return of premium feature.
- Premium Payment: Premiums are paid regularly according to the chosen frequency—annually, semi-annually, quarterly, or monthly.
- During the Policy Term: If the policyholder dies during the term, the nominee receives the sum assured as the death benefit, and the policy ends.
- Survival of the Policy Term: If the policyholder survives the term, they receive a refund of all premiums paid. This is the key feature distinguishing TROP from regular term plans, which offer no survival benefits.
- Maturity: Upon policy maturity (if the policyholder survives the term), the policy terminates, and the premium refund is provided.
The premium refund typically includes only the base premiums for the life cover, excluding any additional premiums for riders or extra benefits. It’s crucial to review the policy terms carefully, as these can vary between insurance providers.
What Do You Get Back After the TROP Policy Matures?
When a TROP policy matures, the following components are typically returned:
- Base Premiums: All base premiums paid during the policy term are refunded.
- Modal Loading Premiums: Additional premiums paid for choosing payment frequencies other than annually (e.g., monthly, quarterly) are usually returned.
- Additional Underwriting Premiums: Extra premiums based on medical reports, health conditions, habits, etc., are returned to you.
- Rider Premiums: Premiums paid for riders are generally not refunded, though there can be exceptions.
- Taxes: Taxes associated with premium payments are not returned.
- Some Additional Underwriting Premiums: Certain products may not refund additional underwriting premiums.
Example to Illustrate TROP:
Consider an individual named Mohan who buys a TROP plan with the following specifications:
- Sum Assured: Rs 1.5 crore
- Annual Premium: Rs 30,000 (excluding tax)
- Policy Duration: 45 years
- Nominee: Priya (Mohan’s wife)
Difference Between Regular Term Plan & TROP
Regular Term Plan:
- Death Benefit: If Mohan passes away during the policy term, Priya will receive the sum assured of Rs 1.5 crore.
- Maturity Benefit: If Mohan survives the policy term, he will not receive any payout.
TROP Plan:
- Death Benefit: The death benefit remains unchanged; Priya will receive Rs 1.5 crore if Mohan passes away during the policy term.
- Maturity Benefit: If Mohan survives, he will receive a refund of all premiums paid, totaling Rs 13,50,000 (Rs 30,000 x 45 years).
Differences Between Term Plan with Return of Premium and Pure Term Insurance Plan:
| Features | Regular Term Plans | Term Return of Premium Plan |
|---|---|---|
| Cost | Premiums are affordable | Premiums are quite expensive |
| Benefit Offered | Only death benefit is offered | Offers both death benefit and maturity benefit |
| Returns | No maturity benefit; nothing is returned if you outlive the policy period | All paid premiums (excluding taxes) are refunded if you survive the policy period |
Top Reasons to Buy Term Insurance with Return of Premium
Term insurance with a return of premiums is ideal for those who don’t want to lose their money. If you prefer receiving something in return for your investment upon policy maturity, this plan could be suitable. The premiums (excluding taxes) paid for a TROP policy are refunded, and if you pass away during the policy term, your family receives the entire sum assured as the death benefit.
Benefits of Term Plan with Return of Premium
- Guaranteed# Returns in the Form of Maturity Benefits: TROP provides guaranteed# returns, ensuring that the total premiums paid (excluding taxes) are refunded if you survive the policy term. This amount can be used to meet your family’s needs.
- Death Benefit: In the event of your untimely demise, your nominee receives the sum assured, allowing your family to meet their financial needs and goals, such as your child’s education or paying off debts.
- Surrender Value: If you choose to surrender your TROP policy before it matures, you will receive a surrender value, calculated based on the number of years the policy was active and the total premiums paid.
- Paid-Up Value: If you prefer to continue the policy with a reduced benefit rather than surrender it, you can opt for a reduced paid-up policy. The death benefit will be proportionately reduced, but you won’t need to pay further premiums. If you survive the term, you will receive a refund of all premiums paid before the policy was converted.
- Insurance Riders: TROP plans offer additional riders that enhance the policy’s coverage, such as accidental disability, critical illness, accidental death benefit, waiver of premium, hospital care, and surgical care riders.
How to Choose the Tenure of a TROP Policy
When selecting the duration of a TROP policy, consider the following:
- Assess your income, loans, liabilities, savings, and fixed deposits. Determine your financial goals, such as funding your child’s marriage or buying a house.
- Estimate the age at which you will be free from financial responsibilities and have enough savings to live comfortably.
- Purchase a TROP plan with a term that covers this period, ideally with a 5-year buffer.
TROP Plans Offered by ABSLI
- ABSLI DigiShield Plan: This top-tier term insurance plan offers features such as Sum Assured reduction options, increasing cover, whole life cover (up to 100 years of age), maturity benefits with return of premium options, and various riders, including Accelerated Critical Illness, Accidental Death Benefit, and Accidental Disability Riders.
- ABSLI Poorna Suraksha Kawach: This comprehensive protection plan is designed to secure your family’s financial future with multiple plan options.
Conclusion
Regular term plans do not provide benefits if you outlive the policy term. A TROP plan is a good investment option if you prefer a product that refunds your money. While you can’t expect high returns, the policy at least ensures you get back your invested premiums.
Before purchasing any plan, ensure it aligns with your needs, expected returns, and budget. Most importantly, carefully read the policy terms to avoid any surprises in the future.