Term Plan with Return of Premium – Are you winner or loser?

Term Plan with Return of Premium - Are you winner or loserTerm 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?

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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

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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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Suresh

Term Plan with Return of Premium – Are you winner or loser

13 comments

  • Rajkumar

    Mr.suresh
    Max Life Return Protection plan premium showing their website 22000 but your mentioned 122000 so please clarify

    • Hello Rajkumar, I could see that the premiums are corrected for Max life. Even the simple term insurance plan premium is hiked by 10%. Let me review this again and update the article. As of today for a 30 years male for 30 years policy of Rs 1 Crore the simple term plan premium is Rs 8,400 approx and return of premium option the premium is Rs 16,200 (almost 95% higher). While it is still high, certain nos in the article need to be updated now.

  • Arup Raychaudhury

    Having health insurance of RS 8.0 L. Is it wise to go for term insurance with critical care benefits or health insurance top-up? Age30 non smoker female

    • But why do you want to club life risk coverage with health insurance coverage? There are good health insurance plans which are independent and if you are not happy, you can always shift to another after an year. However, term plan is generally taken for 20-30 years and you don’t change it unless you see real issue with the insurance company

    • Raghvendra

      Dear arup ji
      It will depend that from which company you are having your existing Medicaid

      Mediclaim + health insurance topup and critical illness with term insurance both has different set of benefits….

      Critical illness with term insurance pays you lumsum on diagnosis but it comes with a survival period clause
      Wether you take treatment or not.

      Mediclaim pays you for treatment of disease but in some companies Mediclaim you need to opt for critical illness and there is no survival period clause .

      First you need to be clear that why should you opt for critical illness cover

      If for treatment- then mediclaim topup

      If for financial stability- then also it needed to be clubbed parelely with mediclaim so that amount is available after the discharge from hospital

      Topup is cheaper then critical illness rider

  • hemant dwivedi

    Please go through maxlife insurance smart term plan with return plan.

    It all depends on
    1.premium paying term ( regular/ limited period pay)
    2.riders benefits

    For further details please feel free to contact me

    Hemant dwivedi

    • Hemanth, How does it matter if a individual is taking riders or premium paying term ? End of the day the person is paying higher premium which is returned back to him (which are very lowest returns)

  • nagendra

    Thanks for the info. But I differ with you slightly as there is not that much difference in premium amount. I took TATA AIA sampurna raksha+ policy with 16000/- premium per year(paying only for 10 years for 30 years cover) for 1crore sum assured, where as in plain term plans it is aroun 6000/-

    Also, plain plans include 18% premium as tax, where as these have around 2.5% premium as tax.

    I strongly recommend this and pls let me know your opinion on this.

    P.S: I am regular visitor of your blog.. and thanks for your time and effort in teaching us 🙂

    • Hi Nagendra, Very good example. Go through your brochure which is term plan plus (return of premium) and look at the simple TATA AIA Sampurna Raksha which is plain term plan. 1) You are paying premium double the amount of term plan i.e. 2 times of your regular premium (both are exclusive of Taxes as non of the insurance companies would indicate with taxes on brochure). You are getting same sum insurance cover. 2) Your premium paid by you is returned after 30 years. Assume that you deposit this difference of premium in simple bank FD, you would be getting more. Yes, the one i compared was with Max Life ROP plan, but yours is TATA AIA plan. In simple summary, you are paying more for what you are getting the benefit.

      • Shreyas Desai

        Hi Suresh,

        Thanks for this informative article. I tend to agree with Nagendra above on his reasoning. However I am not sure if the 6k is also for payment of 10 years premium compared to 16K for TRoP which is 10 year premium payment only.
        This is important as you increase the coverage and as your age increases and if you opt for 10 year or 5 year payment of premium. in Tata AIA, in found that for my age, the difference for a 10 year payment policy of 1 CR for a 35 year old the yearly premium between TROP and pure term is just Rs 3000. Yes the difference is high if I opt for yearly payment till term. However considering a 10 year payment schedule and the difference of just 3000 my total premium was around 26K. With the advantage of 2.5%tax vs 18%tax the final amount was pretty much the same for premium payment.. hence I opted for TROP .
        There could be disadvantages of paying a 10 year premium vs paying yearly, but that’s a different discussion.

        • Good points. Can you try by going pure term plan without return on premium on same Tata AIA term plan based on your age and tenure and come back to me how the nos working out. I want you to do that as this was experiment with few members online with various insurance companies and I wrote this artilce. Yes there could be some merits, end of the day, you are paying high premium.

    • Raghvendra

      Dear nagendra ji
      You have bought a limited pay without return of premium term insurance. Which will not return your premium at the end of term. The return of premium version is much costly then 16000/-
      The above article is comparison between with return of premium vs without return of premium.
      Please don’t get confused
      There are many variants available in term plan. Few of them are listed below

      Term-regular pay
      Term- regular pay- with return of prem
      Term- limited pay- longer coverage
      Term- limited pay- longer cvr- return of premium

      Rgds
      Raghvendra

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