All You Need to Know About Term Insurance With Return of Premium

Term Insurance with Return of Premium

Term insurance with return of premium (TROP) is a variant of term insurance policy that is specially designed to cater to the requirements of the policy buyers. Similar to a standard term insurance policy, the TROP also offers the benefit of financial coverage to the insured’s family against any type of emergencies. However, one of the unique features of term insurance with a return of premium plan is that it also offers the advantage of survival benefits.

To help our readers to know more about term plans with return of premium, we have discussed it in detail.

What is Term Insurance with Return of Premium Plan?

TROP is a variant of a term insurance plan wherein, the entire premium paid towards the policy is paid back to the life assured at the end of the policy tenure. This benefit is paid to the life assured as a survival benefit in case the policyholder survives the entire tenure of the policy, provided all the premiums of the policy are duly paid.

How Does Term Insurance with Return of Premium Work?

Consider a term plan with Rs.40 lakh cover for a tenure of 10 years for which the annual premium is Rs.4000. In case of demise of the life assured, the family will be paid Rs 40 lakh as the sum assured amount. However, if the life assured survives the entire tenure of the policy then the insurance company will return the entire premium amount i.e. Rs. 40,000 (Rs.4000 X 10).

A term return of premium plan is a non-participating insurance policy that offers a death benefit to the family of the insured along with the benefit of the return of premium as survival benefit in case of survival of the life assured during the policy tenure.

Features of Term Insurance With Return of Premium

Let’s take a look at some of the salient features of the term plan with return of premium:

Sum Assured

The sum assured in the term plan with a return of premium refers to the life insurance cover that is offered by the insurance company to the policyholder at the time of signing up for the plan. As compared to the pure protection plan, the TROP offers a lower sum assured amount as the premium amount is refunded to the policyholder.

Maturity Benefit or Survival Benefit

The maturity or survival benefit offered by the term return of the premium policy is what makes it different from a pure term insurance policy. Under TROP the entire premium of the policy is paid back to the policyholder as a survival benefit in case the policyholder survives the entire tenure of the policy. On the other hand, there is no maturity benefit offered under a traditional term insurance plan.

Death Benefit

In TROP, the death benefit is offered as the total sum assured amount to the beneficiary of the policy in the event of the unfortunate demise of the insured person during the policy tenure. The sum assured amount is as per the type of cover and premium mode chosen by the policyholder at the time of policy purchase.

Surrender Value

The surrender value of term insurance with the return of premium plan varies as per the payment option chosen by the policyholder. For the single premium policy where the entire policy premium is paid at the initiation of the policy, the surrender value is offered more. The insurance companies calculate the surrender value based on various factors. Thus, an individual should estimate the amount they will receive as a surrender benefit before purchasing the policy.

Riders

There are different rider options offered under the TROP plan along with the basic cover. These riders include:

Critical Illness Rider

Under this rider option, an additional sum assured amount is paid to the life assured in case of diagnosis of any of the critical illnesses as mentioned in the policy documents.

Personal Accident or Disability Rider

Under this rider option, an add-on sum assured amount is paid to the policyholder in case of death due to an accident, an accident that may cause injury or disability.

Hospital Cash

Under this rider option, a certain cash benefit is offered to the policyholder in case of hospitalization due to certain predefined reasons.

Tax Benefit

The premium paid towards the policy up to the maximum limit of Rs. 1.5 lakh and the maturity proceeds are tax exempted under Section 80C and 10(10D) of the Income Tax Act.

Difference Between Term Plan with Return of Premium Vs Pure Term Insurance Plan

The following are the difference between TROP vs Pure Term Insurance Plan:

Term Plan with Return of Premium (TROP)Pure Term Insurance Plan
TROP is a variant of a term insurance policyPure protection term insurance plan is the simplest form of life insurance product
Offers death benefit as insurance coverage along with the benefit of the return of premium in case of survival of the policyholder for the entire policy tenure.The only death benefit is offered as insurance coverage
TROP offers a comparatively lower sum assured amount to the life assuredThe sum assured amount offered to the policyholder in a pure term insurance plan is 10 times the annual premium paid
The premium amount of TROP is generally high.An individual can avail the advantage of higher coverage at a lower premium rate.
Offers tax benefits under Section 80C and 10(10D) of the IT ActOffers tax benefits under Section 80C of the IT Act
Best suited for individual who wants gain return along with the benefit of insurance coverageBest suited for individuals who want to ensure the financial protection of the family.

Wrapping it Up!

Term insurance is a must-have for every individual. To choose the most appropriate plan, an individual should make sure to know the different aspects of the policy. Check, what are the benefits offered by the policy and make an informed choice.

FAQs
What is the maximum tenure of TROP plans?
The term plan with return of premium offers different policy tenure ranging from 10 years, 15 years, 20 years, 25 years to 30 years.
What is the unique benefit offered by the TROP plan?
Along with the advantage of the death benefit, the TROP offers a return of premium as a survival benefit to the policyholder at the end of policy tenure in case of survival of the insured person.
What are the tax benefits offered in a TROP plan?
The policyholder can avail tax benefit on the premium paid towards the policy and maturity proceeds under Section 80C and 10(10D) of the IT Act.
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