Term insurance is a popular insurance product among policyholders. It is frequently referred to as a simple and uncomplicated method for securing one’s financial future. While it may be sufficient for most people, options like a term plan with a return of premium can provide additional benefits. Let’s have a look at how it works.
What is a term insurance plan?
Term insurance is the most basic type of life insurance. It is also one of the most economical types of life insurance. Term insurance does not include an investment component and assures a predetermined payout upon the insured’s death.
Term insurance programmes, in general, do not provide any survivor benefits. The rates are among the lowest at the start of the policy but steadily rise as the insured’s age increases. The policyholder pays a more significant premium, receives no returns, and the demand for extensive coverage declines. All of this makes a standard term insurance policy far from ideal.
What is a Term Plan with Return of Premium?
A term plan with a return of premium is essentially the same as a conventional term plan. It functions as a life insurance policy, paying out a death benefit to the policy’s beneficiaries.
The maturity benefit available on a term plan with a return of premium is the primary feature that distinguishes it.
By paying an additional premium, policyholders can benefit from a term plan with a return of premium.
You can pay the premiums according to the needed sum assured and insurance duration. The insurance company will refund the policyholder’s premiums when the policy matures.
Usually, there are two kinds of policy buyers:
- One seeking a way to save money while also having life insurance.
- One who just needs life insurance to offer financial support to their family in their absence.
You can select an appropriate plan for your family based on your financial needs.
How Does Term Insurance with Return of Premium Work?
Before purchasing a plan, it is to your best advantage to thoroughly map out the goal of the investment.
Understanding how a term plan with a return of premium works can help you see your financial plans more clearly.
Consider the situation of Mr Sharma, a 30-year-old man seeking coverage for himself. He is a healthy man who does not smoke or has a medical history. He chooses a term plan with a premium return and an amount insured of Rs. 50 lakhs.
His plan’s yearly premium is Rs. 12,718 for 40 years, or until the insurance matures. If Mr Sharma dies within the policy’s term, the person named as the nominee will get the Rs. 50 lakh cash insured.
However, if Mr Sharma survives the policy term, he will be entitled to a maturity benefit to refund the premium under the term plan. When the policy matures, he will earn Rs. 5,08,720 (12718 x 40).
Benefits of Term Plan with Return of Premium
Of course, the most significant advantage of the return of premium term insurance is that your premium payments are refunded if you outlast the term.
Let’s discuss the various advantages of an ROP term policy, ranging from tax-free premium payment returns to increased flexibility and independence.
1. ROP Benefit
Because there is no maturity benefit, many insurance purchasers are deterred from purchasing a term plan. A term plan provides the choice of a term plan with a refund of premium as an alternative. The ROP (term insurance with a return of premium benefit) gives policyholders peace of mind.
2. Death Benefit
The primary goal of purchasing a standard insurance plan or term plan with a return of premium is to provide life insurance. They want to build a financial fortress around their family to protect them from unforeseen events.
TROP’s death benefit assists the policyholder’s family manage their expenditures during a catastrophe.
3. Tax Benefits
Purchasing a term plan with a return of premium entitles a person to tax savings. You can make use of the benefits following the applicable tax legislation. The premium paid for the term plan and the benefit amount is tax-free under Sections 80C and 10 (10D).
A tax deduction of up to Rs. 1.5 lakh can be claimed on premiums paid for a term plan with a premium refund.
Is the return of premium life insurance worth it?
A return of premium life insurance policy may be appropriate for someone who can afford to pay more each month and wants a low-cost forced savings vehicle. However, it is not suitable for most individuals who only want basic life insurance coverage to safeguard their families.
Receiving a significant sum of money as you approach retirement is appealing, especially if you don’t have to pay taxes on it. But, because you’re just getting the money you paid for premiums, it’s not more money; it’s money you already had. Furthermore, it is money that has missed out on years of compound interest, making it less valuable than if it had been invested or put in a typical savings account.
Wrapping It Up
Given the rising cost of living and our increasing duties in life, we seek better methods to manage our money. Financial instruments that can grow wealth and get life security can be an effective way to do this.
Additional advantages of a term plan with a return of premium option include premium waiver, accidental death benefit, disability compensation, and protection against severe diseases. Investing in TROP might provide policyholders with a sense of overall security.
Investing in term insurance with a premium return allows the policyholder to decrease their tax liability. The policy premiums are tax-deductible up to Rs 1.5 lakh per year under Section 80C of the Income Tax Act of 1961. Section 10 (10D) of the tax legislation exempts the dividend from income tax.
It may be challenging for a policy buyer to pick amongst the many insurance packages offered. Choosing based on a single decision element, such as cost or policy period, may not be advantageous. As a result, to be happy with the investment, examine the exclusive benefits of a term plan with a return of premium.