What Is The Benefit of Term Insurance with Return of premium?

  • Term Insurance

Introduction

Term insurance is the most straightforward and generally affordable form of insurance plans. It provides you and your family with the most comprehensive financial security against the uncertainties of life. Essentially, in case of your untimely demise, your family can get a payout, known as the sum assured, paid to your nominee by the insurance company, as long as the date lies within the specified policy period of the insurance plan. In the event that the tenure of the policy ends within the lifetime of the insured, the money is not returned to the policyholder

What is term insurance with a return of premium?

A regular term insurance plan only pays the sum assured in the event of the policyholder's demise and there are no other payments made to the insured. However, you can opt for term insurance with return of premium, which is a plan that pays back the premium to the policyholder if they are still alive when it matures. The term insurance premium is essentially the amount paid by the insured to the insurance company for financial coverage. This can be done on a monthly, quarterly, semi-annual or annual basis. Since there is an assured return of premium if the insured survives the policy term, the term insurance plan with a return of premium has a higher premium as compared to that of a pure term plan.

The factors that influence your term insurance premium include age, occupation, the tenure and total amount of your insurance coverage, your health and whether you're a smoker or not. Before deciding on a plan, it's important to figure out how to research the best term insurance plan for you. Consider the following benefits to a term insurance plan with a return of premium:

1. Assured Returns

There are a variety of insurance plans available in the market, but not all give guaranteed returns, nor are they market-linked. A term plan with return of premium guarantees that the policyholder will get their money back, as per the terms, and the assured returns of the total amount of premiums paid helps out the insured and puts their family at ease. It also makes it easier for planning out future finances and investments

2. Survival benefit

Term insurance with a return of premium provides a refund of all the premium payments made over the period of the policy, as opposed to a pure term insurance plan. The policyholder will be considered eligible to receive the total amount assured at the time of maturity, if they survive the full term period of the policy. This makes it an ideal option for investment since it offers the combined benefit of insurance cover and premium refund

3. Rider benefit

The rider benefit offered by a term insurance return of premium plan widens the scope of the policy. It’s advisable for a policyholder to choose riders like physical disability, critical illness, or personal accident. This can be done at the time of signing up or added to the policy later. Selecting such riders at the time of taking the policy gives you an extensive insurance cover at a low additional cost.

4. Tax benefits1

The term insurance with return of premium plan offers certain tax benefits as per the current tax laws, which makes it an attractive option. The amount drawn as well as the premium paid are tax-free according to Section 10 (10D) of the tax laws. Additionally, the tax exemption is applicable up to a maximum of Rs. 1.5 lakh under Section 80C of the Income Tax Act, 1961.

1Tax Benefits are subject to changes in tax laws. Please consult your financial advisor for more details.

Conclusion:

The combined benefit of assured returns as well as an insurance cover makes a term plan with return of premium and ideal choice. A few important features besides the survival or maturity benefits that should be taken into consideration are: surrender value - the sum that the policyholder will receive if they choose to surrender the plan before the maturity date; death benefit - ensures that in case of the insured’s untimely demise the full sum assured is given to a nominee; paid-up value - the plan can be continued even if a policyholder is not able to pay the premium, albeit with a lower cover. Most companies only offer this after the policyholder has paid the premium for a specified period of time. Additionally, make note of your insurer's Claim Settlement Ratio (CSR); it reflects the percentage of claims that your insurer has settled in recent history and the higher it is, the better your chances of getting your claim settled. It is advisable to assess your needs and all the mentioned features and benefits before deciding between a term plan with return of premium or a pure term plan.

ADV/3/20-21/2488

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