Term Insurance with Return of Premium (TROP)

Written by : Knowledge Centre Team

2023-02-02

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Term insurance is the simplest form of life insurance. It is also one of the most affordable protection plans. It doesn’t have an investment component and guarantees a pre-decided payout if the policyholder passes away. Generally, term insurance plans do not offer any survival benefits. However, with changing financial needs, there are term plans that offer a return of premium. This happens only when the policyholder survives the policy term.

Let us understand term plans with return of premium in this article.

What is Term Plan with Return of Premium?

A term insurance plan with return of premium is a pure protection plan that offers to return all the premiums paid during the policy term if the policyholder outlives it. Policyholder may add other family members for the life cover. If the policyholder passes away when the policy is active, premiums will not be returned. The beneficiaries will get the death benefit of the plan.

How does a Term Plan with Return of Premium Work?

Return of Premium is a feature that is generally available as an option. Policyholders may assess their financial needs and goals to choose the right plan option.

Let us take an example to understand how term plan with return of premium works.

Mr. Pal, a 25-year-old man is looking to secure his future with a term plan. He is a healthy man who doesn't smoke or has any history of medical problems. He opts for a term plan with return of premium and selects a sum assured of Rs. 50 lakhs as per his current financial need.

Suppose the annual premium payable for the plan is Rs. 10,000 for a tenure of 40 years. If Mr. Pal passes away within the policy term, the nominee will receive the sum assured of Rs. 50 lakhs.

However, if he survives the policy term, he will be eligible for a maturity benefit under term plan with return of premium option. He will receive Rs. 4,00,000 = 10,000 x 40 on maturity of the policy.

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

Anyone can buy a term plan with a return of premium option. The plan is a pure protection plan designed to meet the protection goals of your life. The minimum and maximum age to buy the plan may vary from one plan to another and from insurer to insurer.

When You're Single

Single people also need financial protection. Buying a term plan early in life will help them protect their parents. Return on the premium can act as a maturity benefit or an additional corpus when the policy term is over.
When You're Married and Have No Kids

Responsibility increases when you get married. Your spouse's financial future is linked to yours. Hence, a term plan with a return of premium will protect them if something happens to you. Your partner will have a financial cushion to help them pass through the situation swiftly when you are not around.
When You're Married and Have Kids

The responsibilities grow when it comes to children. A comprehensive term life insurance will help you protect their dreams. The return of premium will act as a bonus corpus to support your child's dreams and goals.

Why Should you Buy a Term Insurance Plan with Return of Premium?

Term insurance with a return of premium offers all the benefits of a regular term insurance plan with survival benefits. It is an ideal option for people seeking life insurance coverage with returns. Here are three benefits of buying this plan:

Return of Premium Benefit

Term insurance plans do not offer any maturity benefits. However, if the policyholder outlives the policy term, they can get all the premiums back with a term insurance plan with a return of premium. Canara HSBC Life Insurance iSelect Smart360 Term Plan offers this feature.
Comprehensive Coverage

Optional riders can be added to cover accidental death, accidental disability, and critical illnesses. A term insurance plan with a return of premium with suitable riders provides comprehensive coverage at affordable rates.
Tax Benefits

Buying a term insurance plan with return of premium offers the policyholder the opportunity to reduce their tax liabilities. The premiums paid for the policy are eligible for tax deductions of up to Rs 1.5 lakh per annum under Section 80C of the Income Tax Act, 1961. The payout is exempt from income tax under Section 10 (10D) of the tax laws.

Term Insurance Plan Vs Term Plan with Return of Premium

Pure Term Insurance Plan	Term Plan with Return of Premium
Simple pure risk cover	Term plan that returns the premiums
Offers only death benefits to the beneficiaries	Offers death benefits if the policyholder passes away during the policy term. And provides survival benefits if the policyholder outlives the policy term.
Designed for people who are looking for only protection	Designed for people who wants a term plan for protection and returns
These are generally affordable plans	Expensive when compared to pure term plan

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

There are a few pointers you must consider to buy the best term insurance plan with a return of premium for your financial goals. Finding a term plan that suits all your life goals may be challenging.

Consider the following pointers before buying a term insurance plan that returns the premium:

Decide your Cover Amount

The cover amount of a term insurance plan should be ten times your annual income. The amount you choose should be enough to cover your family's finances if something happens to you during the policy term. And if you outlive the policy term, you will get all the premiums back. It's a win-win!
Check the Premium

The premium of the term plan you choose will depend on your age, type of coverage, occupation, policy term, amount of coverage, lifestyle habits, and medical history. Check the premium amount and the payment frequency. iSelect Smart360 Term Plan has multiple premium payment options, which makes it easier for policyholders to choose one as per their financial bandwidth.
Claim Settlement Ratio of the Insurer

It is always a good idea to check the Claim Settlement Ratio of the life insurance company. Canara HSBC Life Insurance has a ratio of 99.23%^ in FY 2023-2024. A high ratio indicates that the insurer can successfully claim the settlements.

FAQ

Disclaimer: This article is issued in the general public interest and meant for general information purposes only. Readers are advised to exercise their caution and not to rely on the contents of the article as conclusive in nature. Readers should research further or consult an expert in this regard.