Term Insurance Plan Offering Return Of Premium

• Reduce taxable income by up to Rs. 1,50,000 deduction under section 80C**
• Convenient payment options - annual, half-yearly, quarterly or monthly premium payments
• Do more with plans that offer pure protection, retirement planning and investment options

A term insurance plan is one of the simplest forms of insurance plans. The cost of a term insurance plan is very low compared to other life insurance plan types such as endowment plans or ULIPs since their only function is the basic function of a life insurance policy i.e. to provide financial protection to the life assured’s family. A term insurance plan can be purchased as a backup or in addition to an investment instrument such as mutual funds. Thus, by paying a nominal amount on a regular basis, one can leave behind a huge sum of money for his/her family to carry on with their lives.

Meaning of TROP Plans

Term insurance requires the policyholder to pay premiums to the insurer for a certain period as decided by the insurer and insured. The policyholders have to pay premiums throughout the policy term or for a certain period less than the chosen policy term. While a traditional term plan does not pay anything if the life assured survives the policy term, a plan with the Return of Premium rider will refund the total premium amount paid throughout the term.

For example, a term insurance plan that has a sum assured equal to Rs.10 lakh may require the policyholder to pay, say Rs.7 lakh as the premium. If the individual passes away during the chosen term of the policy, the sum assured equal to Rs.10 lakh will be provided to the nominee. However, if the life assured survives the complete term and he/she had opted for the Return of Premium rider, he/she will receive Rs.7 lakh as a refund of the premiums paid.

Features of Term Life Insurance Plans That Offer Return of Premium Rider

Term insurance policies that offer Return of Premium are slightly different from the basic term insurance plans on certain parameters. Below are the details of such policies:

Eligibility

Each insurer and each plan mention the age restrictions of the policy. The minimum entry age is 18 years in most cases and the maximum is generally about 65 years. It is important to take note of the age restrictions and the maturity age before purchasing a policy. For example, it wouldn’t make sense for a 50-year-old individual to buy a 15-year policy in which the maximum maturity age is 60 years.

Sum Assured

The sum assured is the maximum amount payable by the insurer to the beneficiary of the policy when the life assured individual passes away. The sum assured for a plan that offers the Return of Premium rider is generally higher than that of a traditional endowment policy because endowment policies offer returns for a comparatively long period of time whereas term plans with Return of Premium refund the complete premium amount as a lump sum at the end of the policy term.

Premium

The premium payable towards the term insurance policy is calculated based on factors such as the sum assured chosen, the policy term, additional riders opted for, etc. The premium for term plans with Return of Premium will be slightly more than the premium charged for simple term plans.

Benefits

• Death benefit: In case the person who was insured does not survive the tenure of the policy and passes away, the death benefit is provided to the beneficiary. The death benefit payable is, in most cases, the higher amount of the sum assured, the maturity benefit, or a specific percentage of the total premium amount paid. Also, additional amounts are payable in case the policyholder has opted for riders.
• Maturity benefit: The speciality of the term insurance with Return of Premium plan is the benefit that is provided at the end of the policy term if the insured individual survives. The total premium amount paid by the policyholder is returned to him/her, and sometimes a certain amount is paid extra too.

Riders

• Critical Illness rider: This rider provides a predetermined amount if the insured person is diagnosed with one of the critical illnesses as mentioned in the policy. The amount is given in order to help the person manage his/her treatment and other expenditures.
• Accident and Disability rider: This rider acts as an add-on to the base plan and provides an extra benefit. if the insured individual’s death was caused by an accident, an amount equal to the Accident and Disability rider sum assured is paid in addition to the base death benefit.

Other Key Features

• Surrender benefit: If the policyholder decides to surrender the policy before completion of the term, he/she may be given a certain amount known as the surrender benefit. The surrender benefit option may not be available for all plans and depends on the insurer and the plan. The amount depends on factors such as the premium amount, the premium payment mode, and the number of policy years completed until surrender.
• Paid-up value: The paid-up value option of a policy allows a policyholder to enjoy life cover even if he/she is unable to pay premiums after a certain point in time. This option, too, depends on the insurer and the policy.

Tax Benefits

Term insurance plans with the Return of Premium rider provide tax benefits under section 80C of the Income Tax Act, 1961. According to the section, the policyholder can claim the premiums paid towards the policy.