July 25, 2024

Why buying term insurance with a return on premium is a smart choice?

According to research published in The Hindu Business Line, 53 accidents occur on Indian roadways every hour, with one person killed every four minutes. Given the high mortality rate, one needs to have not just motor insurance but life insurance as well. While it is true that the vast majority of the population lacks adequate insurance coverage, Term insurance coverage can help many people afford life insurance due to the low-cost factor wherein one could get higher coverage. 

While it may be adequate for most people, solutions such as term insurance with a return of premium may give extra benefits. What exactly is this plan and how this plan is better than others will be discussed in this article. 

Term plan with a return of premium-what is it?

Term insurance with return of premium (TROP) is a type of term insurance plan that, like a standard term insurance plan, covers the policyholder and provides the death benefit if the insured passes away during the tenure. However, a distinct feature here with a return of premium plan is it provides death benefits as well as a guaranteed return of premium as a maturity benefit if the policyholder lives to the end of the policy period. Just like the standard term life insurance, you have the option of selecting the required sum assured and tenure. 

How Does a Term Plan With Premium Returns Work?

A term insurance policy provides a death payout to your family in the event of your unexpected death during the policy period. Furthermore, the term insurance with return of premium option allows you to receive the complete premium amount paid at the time of maturity, as long as you live the policy period and are not terminated. The premium amount paid will not include any additional premiums paid for the riders specified in the policy.

Benefits of Buying a Term Plan with a Return of Premium

Term insurance with a return of premium plan provides all of the benefits of regular term life insurance, as well as the survival benefit. It’s an excellent option for people seeking a guaranteed return on their life insurance coverage. 

Here are some of the benefits of purchasing a TROP:

Guaranteed Returns: Policyholders who choose the return of premium plan do not need to be anxious about getting back their money. The coverage plan provides a guaranteed return on the whole premium paid, excluding any additional premiums paid for add-ons or riders, if applicable.

Survival Benefits: Term insurance policies normally do not pay maturity benefits; however, term insurance with return of premium plans does provide a survival benefit in the form of a refund of premiums paid. 

Rider Benefits: The term insurance with return of premium allows you to add rider benefits to complement your insurance coverage. Insurance companies offer a choice of supplementary riders from which a consumer might choose. It is better to purchase riders such as personal injury, physical disability, serious illness, and so on at the time of purchase. They provide comprehensive coverage from the minute you sign a term insurance policy. Riders are not required and are offered at an additional cost.

Tax Benefits: Purchasing the best term life insurance with a return of premium qualifies a person for tax benefits. You can take advantage of the benefits under the present tax laws. The term plan premium and benefit amount are tax-free under Sections 80C and 10 (10D), respectively (subject to certain restrictions). You can get a tax deduction of up to Rs. 1.5 lakhs in taxes on term plan premiums paid. 

Death Benefit: In the event that the insured person dies for whatever reason, the term plan with return of premium gives the nominee a death benefit equal to the total sum assured amount. Depending on the plan, method of premium payment chosen, or kind of coverage chosen, different insurance companies provide varied sum assured.

Paid-up Value: As previously indicated, if the policyholder is unable to pay the premium, the plan will continue, but with limited coverage. Before providing this benefit, most companies need the policyholder to pay the premium for a set number of years.

Surrender Value: If you opt to terminate a policy in the middle, a term plan will not refund your money, however a term plan witha return of premium will. It only acquires a surrender value after the first few years, but the surrender fees are substantial. So, not only do you pay extra, but you also pay a large fee if you decide to quit in the middle. In the case of a term plan, even if you receive nothing back, you have more to invest.

Policy term: Although this may vary by insurance company, a term plan with a return of premium is typically available for a policy period of 20-25 years. Term plans normally have a policy duration of 40-45 years. Keep in mind that, while term plans are available for longer policy terms, life insurance is often not required after retirement.

Who should choose a term plan with a premium return?

Single or unmarried individuals: If you are single or unmarried and have fewer dependents or dependent parents, you should consider purchasing a term plan with a premium return. The twofold advantage ensures that your loved ones are taken care of regardless, as the payouts are tax-free under applicable tax regulations.

Newlywed Couples: As a couple, you will realize that your financial duties have begun to grow. You must now account for your spouse, dependent parents/in-laws, and potential children. With a term plan with a premium return, the death benefit ensures that all of your loved ones are insured in the case of your death. The maturity benefit can help to increase your financial security.

Married and have children: When children enter the picture, there are always additional duties. As a result, investing in life insurance products such as term plans with premium returns can help protect your spouse and children from potential financial problems. Furthermore, the maturity benefit of survival might be used to cover expenses such as your child’s higher education.

Senior citizens and retirees: If you are older or planning for retirement, a term plan with a money-back guarantee can be useful. It not only protects your family but also gives you access to additional financial resources in retirement.

NRIs: If you are an NRI with dependents, a term plan with a return of premium option might help you keep your loved ones safe in India. As an NRI, you can also get tax relief on maturity profits under India’s Double Taxation Avoidance Agreement (DTAA), ensuring that you are not taxed twice on the same income – in your resident country and in India.

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