Benefits of Term Plan with Return of Premium

Term Insurance is an excellent way to safeguard your family’s financial security. If you are the breadwinner of the family, you may have responsibilities and obligations towards your spouse, children, and parents. Should you pass away suddenly, you may not be able to fulfil those obligations. With term life insurance, you can plan for your future accordingly. The best part is that they are simple and easy on the pocket.

Despite this, term plans have one major drawback. If you survive the policy term, you won't receive a payout. So, even after paying premiums for several years, you don't get anything back. This is pretty much a major disappointing factor when it comes to term plans. But! You do have an option that may interest you - TROP or Term Insurance with a Return of Premium.

TROP is a type of term insurance policy that provides financial protection to your family if you die during the policy term, as well as an additional benefit if you survive the term.

The TROP plan may seem like a good deal since it sounds better than regular term plans. But, does this plan really pay off? Let’s see.

A term plan with return of premium, also known as a TROP (Term Return of Premium), is a type of term insurance plan that returns the premiums paid by the policyholder if he/she survives the policy term. This is unlike a regular term insurance policy, which offers no survival benefits. Here are some features of a term plan with return of premium:

• Premium Return:
  The key feature of a TROP is that the premiums paid over the term are returned to the policyholder if he/she outlives the policy. This makes it a form of term insurance with a survival benefit.


• Death Benefit:
  Similar to a standard term plan, a TROP also provides a death benefit to the nominee if the insured person dies during the policy term.


• Policy Term:
  The policyholder can choose the term of the policy based on his/her needs. The term can range from 10 to 30 years or more.


• Premium Payment:
  The premiums for a TROP plan can be higher than a regular term plan due to the return of premium feature. The premiums can be paid annually, semi-annually, quarterly, or monthly, depending on the policy's terms.


• Riders:
  Many TROP policies allow policyholders to add additional riders to their policy for added coverage, such as accidental death, disability, or critical illness riders.


• Tax Benefits^*:
  Like other life insurance policies, TROPs may also offer tax benefits^* on the premiums paid and the return of premiums received, subject to the prevailing tax laws.


• No Maturity Benefits:
  Aside from the return of premiums, TROP plans usually do not offer any other maturity or survival benefits.

A TROP plan may be suitable for those who want life cover and would like to get back their premiums if they outlive the policy term. However, since the premiums for TROP plans are higher than standard term plans, it's important to assess whether the return of premiums outweighs the higher cost.

A Term Plan with Return of Premium (TROP) works slightly differently than a standard term plan. Here are the steps to understand how it functions:

• Policy Purchase:
  The policyholder purchases a TROP plan and decides the sum assured (coverage), policy term, and premium payment frequency. The premiums for a TROP plan are generally higher than a standard term plan because of the return of premium feature.


• Premium Payment:
  The policyholder pays the premiums regularly throughout the term of the policy as per the chosen frequency - it could be annually, semi-annually, quarterly, or monthly.


• During the Policy Term:
  If the policyholder dies during the term of the policy, the nominee will receive the sum assured as the death benefit, and the policy will terminate.


• Survival of the Policy Term:
  If the policyholder survives the term of the policy, he/she will receive back the total premiums paid during the policy term. This is the distinguishing feature of a TROP plan. Unlike a regular term plan, where there are no survival benefits, a TROP offers a return of premiums.


• Maturity:
  Once the policy matures (if the policyholder has survived the term), the policy will terminate.

It's important to note that the return of premium feature generally only includes the base premiums paid for the life cover and not any additional premiums paid for riders or other extra benefits. Each insurance company may have slightly different terms and conditions for their TROP plans, so it's important to read the policy documents carefully before purchasing.

Let’s look at an example to understand the TROP concept better -
x Mohan buys a TROP plan with the following specifications:

Regular Term Plan
Death Benefit -
Mohan’s nominee, Priya, will be eligible to receive the sum assured of Rs 1.5 crores if he passes away during the policy term.
Maturity Benefit -
Since this is a regular term plan, Mohan will not receive anything if he survives the policy term.

TROP Plan
Death Benefit -
The death benefit remains unaffected. Mohan’s nominee, Priya, will be eligible to receive the sum assured of Rs 1.5 crores if he passes away during the policy term.
Maturity Benefit -
Mohan will get a refund of all the premiums he has paid, i.e., Rs 13,50,000 (30,000 x 45)

Note: Before you invest in a TROP plan, check with the insurer and read the terms and conditions associated with the premiums carefully.

Term insurance with return of premiums is a new-age plan intended for people who don't want to lose their money. If you wish to receive something in return for your investment money at policy maturity, you can opt for this plan. The premiums (excluding the taxes) paid for a TROP policy are given back to you. And, if you, unfortunately, pass away during the policy tenure, your family will receive the entire sum assured as death benefit.

Guaranteed^# Returns In The Form of Maturity Benefits
 Term insurance with return of premiums provides guaranteed^# returns. This means that the insurers provide you with the assurance that your money will be repaid, as per the policy’s T&Cs.

Here, the assured returns are the total amount of premiums (excluding the taxes) paid out to you if you survive the policy period. This amount can be used to meet your family’s needs.

If you believe insurance cover and a premium refund are sufficient, then this policy may be a suitable investment option for you.

Death Benefit
 As mentioned, earlier, your nominee shall get the sum assured as the death benefit in the event of your untimely demise. With the help of the death benefit, your family can meet their financial needs without compromising their lifestyle.

Your family can also use the death benefit to accomplish your financial goals such as your child's education, paying off debts, etc. even when you are no longer around them. 

Surrender Value
 You may want to surrender your policy for a number of reasons – dissatisfaction with your current policy, being impressed with another policy that offers better features, etc. In that case, if you surrender the TROP plan in the middle of its term, you will receive a surrender value. Each insurance company defines a surrender value factor (SV factor) based on the number of years the policy was active.

Surrender Value = SV factor x Total premiums paid
Note: This formula and factors used to calculate the surrender value can vary for different insurers/products.
The insurance company will calculate and pay you the surrender value, and you can then terminate the policy. Getting the surrender value as a lump sum allows you to invest this amount in other investment products and earn higher returns.

Paid-Up Value
 When you surrender your TROP plan - you have 2 options - take the surrender value and stop the policy or continue the policy on a reduced paid-up basis. If you choose to continue your policy on a reduced paid-up policy, you can keep the term insurance coverage going without paying any future premiums.  However, the death benefit will be reduced proportionately, as per the formula –

(Total premiums paid for base policy / Total premiums payable under the base policy) x Sum Assured applicable before policy moved to RPU

Paid-up value is the reduced benefit you or your nominee will receive. If you decide to continue the policy as a reduced paid-up policy, the reduced benefit will be paid to the nominee if you pass away during the policy term. In the event you survive the term, you will receive a refund of all premiums you paid before your policy was converted to a reduced paid-up policy.

Insurance Riders
 Term insurance return of premium plans provide riders that broaden the scope of the policy. Some of the available riders include - 

• Accidental disability rider
• Critical illness rider
• Accidental death benefit rider
• Waiver of premium rider
• Hospital care rider
• Surgical care rider

You can add this to your policy at the time of signing up or later. When you select such riders at the time of taking the policy, you get comprehensive coverage at a reasonable price.

Choosing the tenure of your policy is entirely at your discretion. When choosing the duration of a TROP policy, you need to keep certain factors in mind -

➔ Firstly, make a note of a few things like the income you draw, any loans/liabilities, your savings, and fixed deposits. Then, figure out your financial goals. This may be your child’s marriage, buying a house, etc.

➔ When you’re done making this estimation, you will be able to determine the age at which you will be free from any financial responsibilities and have enough money to live a comfortable life for the rest of your life. 

➔ It is recommended that you purchase the TROP plan until this age, preferably with a 5-year buffer added to it.

 Regular term plans do not provide any benefits when you survive the policy term. Buying TROP is a good investment option if you are looking for a product that will pay you back. Even though you can't expect high returns, this policy at least refunds your invested money.

Before you purchase any plan, ensure your needs, expected returns, budget, etc. align with it. Most importantly, read through the policy wordings carefully - to avoid any nasty surprises in the future.