Term Plan with Return of Premium – Are you winner or loser?
The term insurance plan is one of the best ways to secure your family life. In case of sudden demise of insured, it would provide sum insured to their family. Many individuals are cribbing that Term Plans does not have any maturity value. Insurance companies have come up with another variant of term plan i.e. Term Plan with Return of Premium. Many of us might not be aware of the features in such plans. What is Term Insurance Plan with Return of Premium all about? How Term Plan with Return of Premium is different from Simple Term Insurance Plan? Which are the top Term Plans with Return of Premium? Should you really opt for such Term Plans?
What is Term Insurance Plan?
Term insurance is the most conventional form of insurance in which the insurance company would pay a pre-determined sum of money for covering the life of the policyholder for a defined and specific period like 10,15, 20, 25 or 30 years in case of death of the insured. If the policyholder survives the policy term, he does not get anything in return. With a term insurance plan, you can get your life assured for about Rs. 1 crore for a premium of just Rs. 7000 (actual sum assured may differ in different insurance companies). It gives an opportunity to leave a sizeable corpus for your loved ones in your absence.
What is Term Insurance Plan with Return of Premium?
Term Insurance plan with Return of Premium (ROP), popularly known as TROP plan, is a variation of term plan that offers death benefits, i.e. it returns the premium paid if the policyholder survives the policy term. For example- a policyholder takes the policy cover of Rs. 50 lakh for 20 years with a yearly premium of Rs 5,000. If the insured dies, the beneficiary is paid the entire sum assured and if he survives the policy term, the insurer will return the premium paid i.e. Rs 5,000 *20 or Rs. 1,00,000. Many insurance companies promotes such policies as Term plan with returns.
Term Insurance Plan Vs Term Plan with Return of Premium
Let us quickly check the difference between these 2 plans.
1) Premiums: Term insurance plan is the most basic form of insurance and is the best choice for anyone who is looking for a low premium but high life-protection cover. Term plan with ROP is one of the different variants of term plans where that premium is not that low. Generally premiums are very high in ROP.
2) Maturity Value: In a regular term plan, if the policyholder survives the policy term he does not get anything in return, whereas, in a term plan with Return of Premium, the policyholder gets back the premium paid excluding taxes and other riders.
Reasons to buy Term Plan with Return of Premium
Here is the term plan with return benefits.
1) The best part of Term Plan with ROP is the return of premium. If the policyholder survives the policy term, he gets back the premium paid and in case of an unfortunate event of death, the nominee will be paid the entire sum assured as the death benefit.
2) There is no limit on the sum assured with term insurance with return of premium. However, it may be subject to an insurance writer’s approval or company policy.
3) If the policy has lapsed due to non-payment of premiums, it can be revived within 2 years from the last premium paid.
4) The premiums paid for these policies are eligible for income tax benefits u/s 80C of the IT Act.
5) These policies can be coupled with various riders offered by insurers like accidental death rider or critical illness rider.
Reasons NOT to buy Term Plan with Return of Premium
1) The biggest reason to not to buy a term plan with ROP over normal term plan is that they are far more expensive than the latter. The Premiums are very high.
2) Surrender benefits also differ from plan to plan and insurance company to another insurance company. E.g. Max Life returns all the premiums paid, HDFC returns only 75% of the premium excluding the first year premium, taxes, and additional premiums.
3) Maturity amounts would also different from insurance company to another insurance company. One should go through the plan before considering them.
Which are the Term Plans with Return of Premium in India?
Below is the list provided of few top term plans with return of premiums.
1) Max Life Premium Return Protection Plan
2) ICICI Prudential Lifeguard with Return of Premium
3) TATA AIA Life Insurance iRaksha Return of Premium. This is nothing but Tata AIA term plan with return of premium.
4) MetLife Suraksha Return of Premium
5) Aviva iShield Return of Premium
6) PNB Metlife Met Suraksha TROP
7) ING Term Life Plus
8) Birla Sunlife Premium Back
You may like: Top and Best Term Insurance Plans to consider in 2019
Term Plan with Return of Premium – Are you winner or loser?
The insurance plans with return of premium are presented in the market as ‘free insurance’ (as you would get return of your premium) but the reality is that they are not the best options. If you opt for an Term Insurane Plan with Return of Premium over a Term Plan, you are foregoing the interest you would have earned over these periods by investing the premium difference.
Let us take an example.
1) MaxLife Term Plan Basic Premium is approx. Rs 7,900 per annum (Excl taxes) for a 30 year non smoker for a 30 year policy for 1 Crore sum assured for basic life cover. Means you pay approx Rs 2.4 Lakhs for 30 years and on maturity you would get nothing.
2) If you take Max Life Return Protection plan, it would come for Rs 122,000 per year, which would be returned to you after a tenure of 30 years. Means, you are paying Rs 114,100 per year extra which comes to approx. Rs 34.2 Lakhs for 30 years tenure. If you compare with term plan you are paying Rs 31.8 Lakhs extra which is paid back to you
3) If you would have deposited this extra money in zero risk Post office FD that gives 8% interest, you can get Rs 1.4 Crores.
4) Means you are keeping your money with an insurance company under the Return of insurance plan and loosing Rs 1.09 Crores in 30 years.
Think Think Think !!! Would you still go for Term Plan with Return of premium plans?
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Term Plan with Return of Premium – Are you winner or loser