Let’s look at an example to understand the TROP concept better -
x Mohan buys a TROP plan with the following specifications:
Sum Assured | Rs 1.5 crore |
Annual Premium | Rs 30,000 (excluding tax) |
Policy duration | 45 years |
Nominee | Priya (Mohan’s wife) |
Difference between Regular Term Plan & TROP
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.
Difference Between Term Plan With Return Of Premium And A Pure Term Insurance Plan
Features | Regular Term Plans | Term Return of Premium Plan |
Cost | Premiums are affordable. | Premiums are quite expensive. |
Benefit offered | Only death benefit is offered. | Offers both death benefit and maturity benefit. |
Returns | There is no maturity benefit. If you outlive the policy period, you don’t get anything back. | If you survive the policy period, all the paid premiums(excluding the taxes) are returned to you |
## Top Reason to Buy Term Insurance Plan with Return of Premium
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.
Benefits of Term Plan with Return of Premium
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.
How Do You Choose The Tenure Of TROP Policy?
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.