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Term Insurance Plan with Return of Premium

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Term insurance plans have become increasingly popular in recent years due to their affordability and flexibility. These plans offer comprehensive coverage at an affordable premium, making them an excellent option for individuals looking to secure their family's financial future.

A term plan with a return of premium, also known as TROP, takes this a step further. It combines the benefits of term insurance with the added benefit of a refund of premiums paid at the end of the policy term.

The primary benefit of a term insurance plan is the financial protection it provides to the policyholder's loved ones in the event of their untimely demise. In the case of a TROP, the policyholder can also receive a refund of the premiums paid during the policy term, thus making it a risk-free investment.

In this article, we will delve deeper into the benefits of a term plan with a return of premium and discuss the features and drawbacks of this policy. We will also explore how to choose the right TROP plan and the factors to consider before making a purchase. By the end of this article, you will have a clear understanding of whether a term plan with a return of premium is the right choice for you and your family's financial security.

Understanding What is Term Plan with a Return of Premium (TROP)

A term policy with a return of premiums is a basic insurance plan that offers to repay all the premiums paid if the policyholder outlives the policy term. Note that the premiums paid won't be reimbursed if the policyholder dies while the coverage is still in effect - in this case, the plan's death benefit will be paid out to the beneficiaries.

The maturity benefits accessible on a term policy with a return of premium make for the distinguishing factor that makes it unique. By paying an additional premium, policyholders can take advantage of a term policy with a return of premium.

You can decide on the necessary sum assured and insurance length, then pay the premiums in accordance with those choices. The insurance company will reimburse you for the premiums paid when the policy expires.

There are typically two types of policy buyers -

  • Individuals who seek both life insurance and a means of saving
  • Individuals who just require life insurance to assist their family financially while they are away

You can select a family-friendly plan based on your budgetary needs.

Best Term Plans with Return of Premium

Discussed below are the best term plans with return of premium -

Term Plan with a Return of Premium  Maximum Age for Cover
ICICI iProtect Return of Premium 60 years
Max Life Smart Secure Plus 70 years
PNB Mera Term Plan Plus 60 years
Canara HSBC iSelect Smart 360 99 years
Aditya Birla DigiShield  75 years
HDFC Click 2 Protect Super 60 years
Bajaj eTouch 60 years
Exide Life Smart Term Edge Classic 50 years
Tata AIA Sampoorna Raksha Supreme 80 years

How Does Term Plan with a Return of Premium Function?

For clarity on how term plan with return of premium works, let’s go through the following example -

Kapil is an expatriate in the UAE who has been living there for a year for work-related purposes. Before leaving India, he purchased a return of premium term life insurance policy to secure himself and chose a sum assured of INR 1 crore. To keep the policy active, he pays a quarterly premium of INR 50,000 for up to 10 years.

In case he passes away during the policy tenure, his beneficiary will receive the sum assured. However, if he survives the policy tenure, he will qualify for a maturity benefit provided under the term policy with return of premium.

So what sets a term plan with a return of premium apart from a pure term insurance plan are these two points -

  • A term plan only pays the death benefit while a term plan with a return of premium gives the policyholder the benefit of the return of premium in the form of maturity benefit once the policy period concludes. 
  • Since the return of premium is guaranteed, the premium for a term plan with return of premium is higher than the pure term plan. 

Why Should You Opt for a Term Plan with a Return of Premium Benefit?

Term plan with a return of premium offers both a survival benefit and a death benefit. Additionally, you can get a waiver of premium benefit, an accidental death benefit, a disability benefit, and protection against critical illness.

Here are the top reasons to opt for a term policy with a return of premium -

  • The plan offers a refund of premium in case the policyholder survives the policy tenure.
  • Coverage against life-threatening diseases is provided.
  • The policyholder has the option to increase coverage as per the life stage.

Features of Return of Premium Term Life Insurance Plan

Discussed below are some key features of the return of premium term life insurance plan -

  • Affordable - The premium paid is returned as a maturity benefit and no additional costs are required. 
  • Options for Premium Payment - Under the term policy with return of premium, the policyholder has the freedom to choose the appropriate sum assured and a suitable premium payment option from the following -
    • One-time Payment - The policyholder pays the entire premium as a lump sum amount in a single transaction.
    • Regular Pay - In this premium payment method, the policyholder pays premium instalments at fixed intervals throughout the policy tenure. They can choose the interval to be annual, quarter, half-year, or month. 
    • Pay till 60 - Under this premium payment method for a term plan with a return of premium, the premium is paid till the age of 60 years while the policy protection extends to the age of 85 years.
    • Limited Pay - Here, you would need to pay a premium amount for fixed instalments. 
  • Assured Return of Premium - When a policyholder purchases a return of premium term life insurance plan, they do not have to stress about if they would get back the paid amount or not. This term insurance plan assures the return of the complete premium amount paid (except the premium amount paid for the riders {if applicable}).
  • Surrender Value - In case you want to discontinue the payments after buying the return of premium term life insurance, you will receive a surrender value. Note that the value of the surrender amount that you will receive depends on the premium payment method you opted for -
    • Single Premium Type - The amount is valid after paying a single premium. 
    • For Limited Pay and Regular Payment Type - It is applicable only when you pay the premium for 2 years. 
  • Paid-up Benefit for Non-Earning Individuals - This benefit is exclusively present for people who are not earning or have no fixed income. Under the return of premium life insurance, the plan continues even if the policyholder is unable to pay the premium, though the cover would be lower. 
  • Riders - Given below are the riders that a policyholder can opt for along with the basic cover -
    • Personal Accident or Permanent Disability Rider - With this add-on, the insured individual is covered if they are involved in an accident that results in an injury, disability, or demise.
    • Critical Illness Rider - This rider provides coverage against certain critical illnesses like cancer, stroke, heart attacks, and some cardiovascular surgeries. However, as the number of critical illnesses covered by the insurance providers varies, the policyholder should make note of the illnesses the rider covers before buying it. 
    • Hospital Cash Benefits - This add-on under the return of premium term life insurance provides the insured with cash benefits in case they are hospitalised due to certain predefined reasons.

Benefits of a Return of Premium Term Life Insurance Plan

The term plan with the return of premium has the following important features -

  • The term plan with the return of the premium is different from a pure term insurance policy in that it provides a maturity or survival benefit. Under TROP, the full premium is reimbursed to the policyholder as a survival benefit if they live for the entire insurance term. A traditional term insurance plan, on the other hand, does not offer a maturity benefit.
  • The term ‘sum assured’ in a term plan with a return of premium refers to the life insurance coverage offered by the insurance provider to the insured at the time of plan enrolment. Since the insured receives their premium refund, the TROP provides a lower sum covered amount than a traditional protection plan.
  • The surrender value of term insurance with a return of premiums plan, calculated by insurance companies using a number of factors, varies as per the type of payment chosen by the policyholder. For single premium policies, for instance, where the whole insurance premium is paid in full at the time of application, the surrender value is provided more frequently. Thus, you should first estimate how much you will receive as a surrender benefit before purchasing the policy.
  • In case the insured individual passes away within the policy term, TROP offers the beneficiary of the insurance the entire sum promised as the death benefit. The scope of coverage and method of premium payment chosen by the insured when the policy was bought will affect the amount guaranteed.

Term Policy with Return of Premium vs Pure Term Insurance: A Comparative Overview

The table below displays the difference between a term plan with a return of premium and pure term insurance -

Basis Pure Term Insurance Term Policy with a Return of Premium
Meaning This is a type of life insurance plan where the policyholder receives a life cover for a specified duration. If they live past the policy duration, they will not get any maturity benefit.  Under this type of life insurance plan, the policyholder gets a life cover for a specific duration. However, if they live past the policy tenure, they get the maturity benefit. 
Survival Benefit No survival benefit is paid The survival benefit is paid and includes the refund of the premium paid. 
Surrender If the insured surrenders the policy, they will no longer be covered under the plan.  If the policyholder surrenders the policy before the end of the policy duration, coverage stops, and they are paid a small fraction of the premiums paid. 
Benefit Affordable, with the premium being relatively lower than other types of life insurance plans This is the smartest form of life insurance plan. If the insured passes away, the beneficiary will get the death benefit. In case they survive, the maturity benefit gets paid. 

Who Can Buy a Term Plan with Return of Premium Benefit?

Each person may have various goals when it comes to making significant financial commitments, such as purchasing a term plan with a return of premium (TROP). This heavily depends on a variety of individual characteristics such as your age, source of income, way of living, and health. Finding the best policy can be aided by performing an analysis of your financial situation using these crucial factors.

So if you want to buy a term plan with a return of premium, you need to weigh the benefits against these considerations. Generally speaking, TROP can be a better option for those who fit into the following categories:

  • Unmarried - You are responsible for your parents' funds as a single individual, especially if they are retired. The maturity benefit of a term plan with return of premiums guarantees that customers will receive a sizable chunk of money in any case. In case the policyholder passes away, the death benefit will be provided to the beneficiaries. Individuals can, thus, rest easy knowing that even in their absence, their parents and family will be able to support themselves financially. In the event that the policyholder is alive at the end of the tenure, they will have the satisfaction of having their entire TROP premium paid back.
  • Married with No Children - You could also want to think about a term plan with return of premium if you are married. TROP might be useful if your spouse depends completely on your source of income. You can set up a system of financial support for them to protect their future from any contingencies. At the conclusion of the policy term, a maturity benefit will be provided.
  • Married and Have Children - In order to ensure their children's financial security, parents must fulfil a wide range of financial obligations. Saving money is an essential component of your investment plans for their wedding, higher education, and other life goals. In case you are the only provider for the family, you should also think about your spouse's and kids' welfare.

As keeping up with current costs while setting aside a sizable amount of money for the future might be taxing on your finances, a term plan with a return of premium that provides the security of a maturity benefit can be useful.

How to Choose the Best Term Plan with a Return of Premium?

If you are a beginner in the field of insurance, you can use some tips to find the best term plan with a return of premium for yourself - 

  • Know Your Life Stage and the Dependents - This is the fundamental rule of selecting a term policy with a return of premium. When determining the coverage you want, your age and financial condition play a significant role. These factors also affect your policy tenure and subsequently the live coverage amount. 
  • Evaluate Your Current Lifestyle - How you currently lead your lifestyle largely impacts your term plan choice. The lifestyle factors to be evaluated include health conditions, spending habits, and general standard of living. It is important, to be honest about your current lifestyle to estimate the required life cover from the term insurance. Once you provide clarity about your lifestyle needs, you can secure loved ones more effectively. 
  • Assess Your Income - This is one of the most common concerns for people when deciding the term insurance amount. It is suggested that you analyse your income to get a more realistic idea about your term insurance with a return of premium. To choose the right plan, it’s also essential to compute your financial obligations so that you do not overestimate the cover. 
  • Check Your Existing Financial Obligations - Your impending debts and liabilities play a crucial role in choosing the best term plan with a return of premium. There are chances that you would have to repay some loans over a long duration. If the policy you are applying for does not cover the loan repayment tenure or if the amount falls short, it can cause serious financial implications for your dependents. Thus, it is advised to smartly choose a term plan with a return of premium after taking your financial liabilities into consideration. 
  • Check the Claim Settlement Ratio of the Insurance Provider - This rate defines the percentage of claims successfully paid by the insurance provider with respect to the number of claims received in a financial year. This ratio can help in analysing the intent and the capacity of the insurance provider. You can also get an idea of whether the provider will keep up with the promise of providing assured financial support in case of a mishap. 

FAQ's

Q1. What are the main benefits of securing a term plan with a return of premium?

Ans: The family or the beneficiary receives financial support in case the insured passes away under an unforeseen circumstance. If the policyholder survives the plan tenure, they will receive the premium amount back (except the amount paid for the rider).

Q2. Is there any grace period when applying for a term plan with a return of premium?

Ans: While the grace period is generally 30 days, it can also be of 15 days in case the policyholder chooses to pay the premiums on a monthly basis.

Q3. What is the minimum age to apply for a term plan with a return of premium?

Ans: The minimum age for a term plan with a return of premium is 18 years in general.

Q4. What should you go for - pure term insurance or term plan with a return of premium?

Ans: It is recommended to opt for a term plan with a return of premium as it effectively provides both death and maturity benefits.

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