Term Insurance with Return of Premium

Term insurance is a type of life insurance that provides coverage for a specified period, ensuring financial security for the beneficiaries in the event of the policyholder's demise during the policy term.

While term insurance is gaining popularity in the UAE due to its straightforward nature and affordable premiums, several individuals hesitate to invest as they won't receive any survival benefits if they outlive the policy.

Addressing this concern, some prominent insurers have introduced term insurance plans with return of premium options. Essentially, this means that if you're alive at the end of the policy term, all the premiums paid are returned to you.

This article dives deeper into the nuances of term insurance with return of premium, shedding light on its features, benefits, and why it might be the right choice for those looking for the best of both worlds.

What is Term Insurance with Return of Premium?

At its core, term insurance is designed to offer life coverage for a predetermined duration. If the policyholder passes away within this term, a death benefit is given to the beneficiaries. However, if the policyholder survives the term, no benefits are typically provided.

This is where the ‘return of premium’ feature comes in.

Term insurance with return of premium, often abbreviated as TROP, is a special type of term insurance plan. In a TROP plan, if the policyholder outlives the policy term, the insurance company returns all the premiums that were paid throughout the tenure.

This feature is similar to getting a refund for not making a claim. It addresses the common concern that many have about supposedly ‘wasting’ money on insurance if they outlive the term. With TROP, policyholders can have peace of mind knowing that they either get protection for their loved ones or their money back at the policy's end.

How Does Term Insurance Plan with Return of Premium Work?

To understand how a term insurance plan with return of premium (TROP) works, it's essential first to distinguish it from a basic term insurance plan.

Basic Term Insurance

A standard term insurance policy provides life coverage for a certain period or term. If the policyholder, let's call him Ahmed, passes away within this term, his beneficiaries receive a death benefit. This benefit is a predetermined amount of money and ensures that Ahmed's loved ones have financial security in his absence. 

However, if Ahmed outlives the policy term, neither Ahmed nor his beneficiaries receive any benefits or returns from the premiums paid. This is because his plan is a pure protection one.

Term Insurance with Return of Premium

Let's now introduce the TROP feature. In this plan, the policy works similarly to the basic term insurance for the duration of the policy term. If the policyholder dies during the term, the beneficiaries get the death benefit. 

The significant distinction here becomes apparent if the policyholder survives the term. Instead of the premiums simply being an expense for the peace of mind, they are returned to the policyholder at the end of the policy term. 

In essence, it's like a money-back guarantee for outliving the policy.

Example

Let's consider a UAE resident called Abdul. He opts for a TROP term insurance plan with a term of 20 years, paying an annual premium of AED 10,000. If Abdul were to sadly pass away within these 20 years, his family would receive the agreed-upon death benefit, ensuring they're financially stable during such a challenging time.

However, if Abdul survives these 20 years, he will receive back all the premiums he paid over the years. In this scenario, Abdul would get around AED 200,000 (AED 10,000 x 20) at the end of the policy term.

In essence, while basic term insurance offers peace of mind with its death benefit, term insurance with return of premium goes a step further. It provides both the security of a death benefit and the assurance of returned premiums if the policyholder outlives the term.

Best Term Insurance Plans with Return of Premium

Let’s take a look at some of the best term insurance plans with return of premium along with their some key details in the table below:

Term Insurance Plans with Return of Premium	Sum Assured	Entry Age	Maximum Maturity Age
SBI Life Smart Swadhan Plus	20 lakhs to 10 crores	18 to 65 years	70 years
Aditya Birla Capital DigiShield Plan	Minimum - 50 lakhs No upper limit	18 to 65 years	85 years
ICICI iProtect Return of Premium	25 lakhs to 20 crores	18 to 60 years	85 years
Max Life Return of Premium	25 lakhs to 10 crores	18 to 65 years	82 years
HDFC Click 2 Protect Super	25 lakhs to 5 crores	18 to 65 years	85 years
Tata AIA SRS Vitality Protect	50 lakhs to 5 crores	18 to 60 years	85 years
Canara HSBC Young Term Plan Life Secure TROP	25 lakhs to 20 crores	18 to 45 years	99 years
PNB MetLife Mera Term Plan Plus	50 lakhs to 1.5 crores	18 to 50 years	80 years

Key Benefits of Term Insurance Plan with Return of Premium

Term insurance with return of premium offers a unique blend of protection and savings. While its primary goal is to safeguard one's family in unforeseen circumstances, the TROP feature ensures that the policyholder's investment isn't lost if they survive the term. 

Let's discuss the key benefits of this insurance variant -

• Comprehensive Coverage: Term insurance with return of premium (TROP) provides complete life coverage, ensuring beneficiaries receive a substantial death benefit in the event of the policyholder's demise.
• Guaranteed Return of Premium: If the policyholder outlives the term, they receive back all the premiums paid, making it a financially prudent choice.
• Maturity Benefits: Beyond just the returned premium, some TROP plans may also offer additional maturity benefits or bonuses, which further increases the total payout.
• Flexible Premium Payment Options: Policyholders can choose how they wish to pay the premiums: as a single lump sum, annually, half-yearly, or even monthly, suiting their financial convenience.
• Shield Against Uncertainty: In volatile times, this type of insurance ensures that loved ones remain financially secure regardless of unforeseen events.
• Retirement Financial Support: The returned premiums can serve as a substantial savings cushion, especially helpful during retirement years when regular income may decrease.
• Peace of Mind: With both protection and guaranteed returns, policyholders can have peace of mind knowing that their investments serve dual purposes.

Drawbacks of Term Insurance Plan with Return of Premium

While term insurance with return of premium offers numerous advantages, it also comes with its own set of drawbacks like any other financial product. It's crucial for potential policyholders to be aware of these challenges to make an informed decision. 

Here are some of the limitations associated with term insurance with return of premium:

• Higher Premiums: The most noticeable downside is the cost. Premiums for TROP term plans are typically higher than standard term insurance. While policyholders do receive their premiums back if they outlive the term, they pay a premium for that feature during the policy's tenure.
• Potential Opportunity Cost: The extra money spent on the higher premiums could potentially be invested elsewhere for potentially higher returns. Simply put, there might be better investment avenues that offer more attractive returns over the same duration.
• Not a Pure Investment Vehicle: TROP might give back the premiums but it doesn't offer the growth potential associated with other investment tools like mutual funds or stocks. For those looking for an investment-first approach, TROP might not be the best fit.
• Longer Commitment: TROP plans usually require a longer commitment. This extended duration might not be suitable for everyone, especially if they want the flexibility to shift their financial strategies.
• Limited Flexibility in Policy Changes: Making changes or adjustments to a TROP policy might be more challenging compared to regular term policies. Certain modifications could result in losing the TROP feature or incurring additional fees.

Who Should Buy a Term Insurance Plan with Return of Premium?

Term insurance with return of premium offers a distinctive combination of protection and savings.

But is it right for everyone? 

Well, the decision to invest in this type of policy often depends on an individual's specific life situation, financial needs, and future goals. 

Let's explore who might benefit the most from TROP and why:

1. Single Individuals

   • Future Planning: Even if they currently have no dependents, single persons might want to lock in a lower rate now, anticipating future family responsibilities. As TROP ensures the return of premiums, it offers both protection for potential future dependents and a savings mechanism.
   • Financial Flexibility: For those who are cautious about losing their money in term insurance, TROP offers a way to secure life coverage while still retrieving the premiums at the end of the term.

2. Married People with No Kids

   • Partner's Security: In the event of an untimely death, the policy ensures that the surviving spouse has financial stability.
   • Shared Financial Goals: As the couple plans for shared long-term goals, the return of premiums can be a welcome addition to their financial planning, perhaps going towards a significant joint expense.

3. Married Individuals with Kids

   • Children's Welfare: Beyond just their partner, these individuals now have the added responsibility of securing their children's future. This policy ensures the family's financial security.
   • Educational and Life Goals: The returned premiums at the end of the term can be set aside for children's higher education or other significant milestones.

4. Individuals Seeking Savings Discipline

   • Structured Savings: Paying regular premiums enforces a discipline of savings, while the guaranteed return ensures the money isn't lost.
   • Future Financial Cushion: The lump sum received at the end of the term can act as a significant financial boost for future needs.

5. Those Hesitant About Traditional Term Insurance

   • Perceived Value: For individuals who perceive traditional term insurance as a potential loss if they outlive the policy, TROP provides an alternative where they can secure coverage without the fear of losing money.

How to Choose a Term Insurance Plan with Return of Premium Benefit?

Navigating the myriad of insurance options can seem overwhelming, especially when considering the added layer of the return of premium (TROP) benefit. The allure of getting back what you pay is undoubtedly attractive, but how do you ensure you're picking the right plan that suits your requirements? 

Here are some crucial factors to consider when choosing a term insurance plan with return of premium -

1. Cover Amount

   • Assessment of Requirements: Start by evaluating your financial liabilities, future expenses, and the lifestyle that you wish to secure for your loved ones. This will help you determine the suitable coverage amount.
   • Future Projections: Remember to account for inflation and potential life changes such as marriage, childbirth, or purchasing a home, all of which can impact the required coverage amount.

2. Premium Amount

   • Budget Compatibility: While TROP plans are enticing with their return promise, they come at a higher premium than standard term plans. Make sure the premium is manageable within your budget without straining your regular expenses.
   • Compare Across Providers: Shop around and compare premium amounts across different insurance providers to get the best value for your money.

3. Claim Settlement Ratio of the Insurer

   • Track Record: This ratio indicates the number of claims settled by the insurer against the total claims received. A higher ratio suggests a better track record, instilling confidence that your claim (or your beneficiaries' claim) will be honoured.
   • Reliability: Opting for an insurer with a good claim settlement ratio ensures that the main objective of the insurance – beneficiary support in the policyholder’s absence – is met without hassle.

4. Policy Tenure and Flexibility

   • Duration: Check whether the policy duration aligns with your long-term financial goals and retirement age. If you're aiming to use the returned premium as a retirement corpus, align the policy's maturity with your retirement age.
   • Adjustment Options: As life is unpredictable, it’s advisable to choose a policy that offers some degree of flexibility. This might include allowing you to increase the cover amount during significant life events like marriage or childbirth.

5. Additional Riders or Benefits

   • Enhanced Protection: Some insurance providers may offer additional riders like critical illness cover or accidental disability benefits at an extra cost. Depending on your health and lifestyle, consider if these additional benefits would be advantageous for you.

Over to You

Term insurance with return of premium (TROP) stands out as a unique and valuable option in the landscape of life insurance offerings. By providing the protective qualities of standard term insurance with the added allure of receiving all your premiums back on outliving the policy term, TROP has carved out a niche for those who value both security and the promise of a return.

With that said, like all financial decisions, choosing to invest in TROP should be approached with prudence. It's essential to recognise that while this plan addresses the hesitancy some may feel about traditional term insurance, it comes with its own set of considerations, especially in terms of higher premiums.

Individuals must weigh the peace of mind this policy brings against the higher costs and potential returns from other investment avenues.

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