Buying an insurance plan is often considered as one of your life’s major financial decisions. People buy insurance for a variety of reasons, like safeguarding themselves and their family members from unforeseen risks or for investment purposes. However, purchasing an insurance policy now is not that straightforward. There are several insurance providers in the market now offering different plans, each catering to consumers’ various needs. Therefore, before buying a plan, you need to ascertain your financial needs and understand which insurance plan is going to meet them.
What is term life insurance?
Term Insurance is one of the most basic forms of life insurance available to users. In case of a term insurance plan, the person insured needs to pay a set amount of premium for a certain number of years. If the person insured dies within the term of the policy, their nominees receive the entire sum insured. However, if they survive, they do not get any money back.
What is term insurance with return of premium?
Term insurance with return of premium (TRoP) works a little differently than a regular term insurance plan. Like term insurance, the person insured needs to pay regular premiums for a set interval and will receive a benefit upon eligibility. However, if they survive the period, they do receive a maturity benefit. For instance, consider that you have bought a life insurance policy with a cover of Rs. 50 lakhs, which has a yearly premium of Rs. 5,000, and a term of 10 years. If you die within the 10-year duration, your nominees will get Rs. 50 lakhs (approximately). But if you survive, you will get Rs. 50,000 (₹5,000×10) back. It should be noted that not all term insurance with return of premium plans give back the entire premium amount as maturity benefit.
Term insurance vs term insurance with return of premium
To help you decide which plan is more beneficial for you, we have compiled a comprehensive list of differences.
- Regular term insurance plan is usually cheaper
A regular term insurance plan is generally more affordable as the premiums for such plans are cheaper as compared to those of a term plan with return of premium. Regular term insurance plans also usually provide a higher sum assured than TRoPs. Some experts suggest that you could invest the premium money saved and gain a higher return on it. Thus, if you’re looking for a more cost-effective insurance plan, which can provide a larger benefit in case of an untimely event or situation, at a lower cost, you could opt for a regular term insurance plan.
- Term insurance with return of premium could be an investment opportunity
Some insurance providers give you an additional percentage of the premium you paid when you receive survivor benefits from a TRoP. Such plans could be considered a safe and relatively risk-free investment opportunity.
- You can miss premium payments with a TRoP
A term plan with return of premium usually has a ‘paid-up’ option which allows the policy to continue, albeit with reduced benefits, even if you default on premium payments. However, to avail this benefit, you generally need to have paid premiums for at least three years. In such cases, the premium paid is often returned to you on maturity but this may lead to a reduction in other benefits. Some TRoPs also give you the option to stop premium payments whenever you want and immediately get the returns owed to you. So, such plans could be beneficial to those who desire liquidity in their investments.
Which term plan should you choose?
Both term insurance plans and term insurance with return of premium plans have their pros and cons. Each plan is suited for people with specific financial needs. Term insurance plans are normally more suited for those individuals who are looking for an affordable way to ensure that their family is taken care of in the event of an untimely death. Meanwhile, TRoPs are suitable for those who want a return on their premiums. However, it is advisable that you view different policies from different providers and compare their premiums and benefits using a term plan calculator before making a decision about the kind of insurance you want to purchase.