As you approach different stages in life, there are dreams and aspirations that you set out for yourself and your family. But this does not set you free from the day to day responsibilities of managing the house, paying for health expenses, school fees, etc. Protect your today to secure your tomorrow.
We always aspire to offer our loved ones everything that they dream for, as much as we wish to secure them. Be it in their professional lives or personal lives, their happiness and protection is our ultimate aim. This is where insurance comes in the picture. There are various plans offered by Insurers but here we will discuss Money Back Term Insurance or more popularly known as Return of Premium Plan.
Money Back Term Insurance or Return of Premium Plan:
A Term plan with Return of Premium is a contract between the applicant and the Life Insurance Company, under which the applicant agrees to pay a certain amount of money (Premium) per year for a fixed period in order to receive a guaranteed amount of money (sum assured) in the event of his death during the policy term, payable to his nominee (any family member). And at the end of the policy term, on survival, the sum of all premiums (excluding rider, extra premium & taxes) paid will be returned to the policyholder.
Who should buy it
A Term Plan with Return of Premium is best suited for individuals who have
- Dependents (Children, parents, spouse)
- Looking for a considerable sum of protection against the uncertainties of life (death).
- The Cost of the policy is low and therefore the risk is minimum
- The choice to add additional benefit or rider makes it more appealing as the policy along with the riders makes it Total Protection Plan.
- Usually, these policy plans come with an assurance to repay the premiums paid. However, the rider payments are not refunded.
- The policy provides premium reimbursement at the time of maturity and therefore, the insured do not lose the premium paid during the term period.
- Once you buy this kind of plan, the premium remains stable throughout the term of the policy unless the contract is tumbled and hence the insured can plan the payments accordingly. It also protects the insured from the additional burden arising due to increasing premiums as in case of other policy plans.
- Moreover, these plans come with tax benefit as premium paid can be claimed as tax deduction under the Income Tax Act.
Below is the Comparison of three Premium Return Policies –
|Basis||Max Life Premium Return protection plan||Aviva i-Shield Return of Premium||Aegon life iReturn plan|
|Entry Age||21-55 years (Maturity age- 75 years)||18-55 years (Maturity age- 65 years)||Minimum: 18-65 years(Maturity age- 75 years)|
|Policy Term||20 to 30 years||10 to 25 years||5 / 10 / 15 / 20 years|
|Sum Assured||Rs. 5 lakhs to Rs. 1 crore||Rs.15 lakhs to Rs.6 crores||Rs. 3 lakhs to 4 crores|
|Premium Return||Refund all premium paid as well as the extra premium if any.||110% of the premium will be repaid.||Money refunded is equal to the premium you paid.|
You can customize your insurance plan as per your requirements. There is an array of add-ons that you can choose on the top of your base term plan to enhance the coverage of your insurance. Your insurance provider usually would give you the options of choosing from Accidental Disability Cover, Critical Illness Cover, Waiver of Premium Cover, etc. Depending on your needs and lifestyle you can choose the best add-on that suits you.
Comparison of Term plan and Return of Premium Plan
|Basis||Term Plan||Return of Premium Plan|
|Costs||a pure term plan is the cheapest form of life insurance as it only charges you for the insurance cover.||The ROP term plans are more expensive as they promise to pay the premiums paid at the end of the policy term.|
|Returns||No return on the premium at the end of the policy term||In case of a ROP term plan, even though you get the premiums back, you do not get any returns on your money|
|Surrender value||If you decide to surrender a policy midway, a term plan does not return any money back||It acquires a surrender value only after the first 2-3 of years, but the surrender charges are very high.|
|Policy term||Are usually available for a policy term of 40-45 years.||It varies from company to company but a ROP term plan is generally available for a policy term of 20-25 years.|
Cons of a Return of Premium Policy
- Return of Premium Costs More: One of the drawbacks about a Return of Premium Policy is that you can expect to pay a higher amount in the form of premium for your life insurance policy.
- Must survive to the End of the Term: With a Return of Premium policy, insured must complete your term to collect the money paid for the policy. If the insured dies before the insurance policy period, beneficiaries would receive the death benefits of the policy, but not the premiums paid by the insured up to that point.
- Must Keep the Policy in Force: Another thing to keep in mind is that in case of a 20-year term policy, it needs to be ensured that the insurance policy is active for the entire period of 20 years. If due to any reason the policy lapses before the end, the insured do not get any of the premium money paid. So, it basically boils down to the simple fact that “it’s an all or nothing policy.”
- No Interest: Another thing that should be kept in mind is that no interest is paid on the money when it’s returned. If the insured has paid 80,000 in premiums over 20 years, that’s what will be paid back and not a penny more. However, in some of the policies, the prescribed percentage is added to the premium paid by the insured at the time of refund.
Is a TROP plan the perfect choice for you?
That is a difficult question to answer because it varies from one person to another as we all are different individuals. It basically boils down to what you are looking in the insurance policy. If you what something in return after the policy gets over or after you survive the term of your policy, this is the perfect choice for you. In fact, you can recover the entire cost of insuring yourself; a TROP plan can be your choice but keep in mind that it won’t pay the taxes paid over the years.
However, TROP plans have higher premiums since they have to return the premium back which might put some customers out of the picture. Moreover, TROP plans are not exactly an investment. The return you get won’t be a profit; you will only get the money you’ve paid over the years so it’s basically getting your own money back without any returns.
Ultimately, whatever you decide or your circumstances are, it’s you who has to secure the future of your family in case of an unforeseen tragedy.
So Compare Term Insurance & Choose Best One For You!