Term Insurance for Young Professional | ABSLI

Summing up!

Regular terms Plans 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. Young professionals often face uncertainty and stress when it comes to managing their finances. One of the fundamental steps of planning your finances at the early stage of your career is to understand the importance of availing the life protection coverage. Before you plan your finances for future goals, it is important to avail of life insurance coverage to financially shield your family against the uncertainties of life such as sudden untimely demise.

What is Term Insurance?

Term insurance is simple to understand and the purest form of life insurance. Basically, term insurance is an agreement between the insurance company and the policyholder in which the insurance company assures to pay the pre-defined sum of money (sum assured) to the nominee of the policyholder in case of the untimely demise of the policyholder during the specified term. The benefits are assured in return for the premium paid by the policyholder. The premium that you pay is for life protection and hence there would not be any survival or maturity benefits at the end of the term in case you survive the policy term. 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

Particulars	Term Life Insurance	Endowment Plans
Objectives Served	Life coverage	Life coverage plus savings
Plan Coverage	Only life insurance coverage is offered	Life insurance coverage along with wealth creation
Sum Assured	Comparatively higher	Comparatively lower
Premium Rates	Comparatively lower	Comparatively higher
Policy Maturity Benefit	No maturity benefit is provided	A part of the sum assured along with any relevant bonus amount is provided as maturity benefit
Policy Payout Modes	Lump-sum or monthly instalments	Lump-sum
Add-ons	Add-ons and riders are available	Add-ons and riders are available
Tax Breaks3	Section 80C offers tax deduction of up to a limit of INR 1.5 lakhs on life insurance premiums paid. Section 10 (10D) makes maturity and death benefit amounts tax-free, given certain conditions are fulfilled.	Section 80C offers tax deduction of up to a limit of INR 1.5 lakhs on life insurance premiums paid. Section 10 (10D) makes maturity and death benefit amounts tax-free, given certain conditions are fulfilled.
Pre-mature Cash Withdrawal	Cash withdrawal is not allowed.	Cash withdrawal is allowed after some years in case of an emergency.

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.

How Does Term Insurance Work?

Term insurance offers the needed financial protection to your loved ones when you are not around. Let’s understand how term insurance works based on an example. Let’s say, Mr. Suraj, 28 years, is employed in an MNC and has three dependents in his family wife and senior citizen parents. Suraj is the breadwinner of the family. Let’s say he has purchased term insurance coverage of INR 1 Cr for a yearly premium of INR 10,000 for 30 years term. During this term, if Suraj dies, unfortunately, the insurance company would pay his nominee/beneficiaries/legal heirs a lump sum of INR 1 Cr. as a death benefit. The beneficiary can utilize this amount to secure the family’s financial future. If Suraj survives the policy term of 30 years, he would not get anything in return at the end of the policy as a survival/maturity benefit.

How To Choose Safe Investment Options?

As you can see, there are several safe investment options for you to choose from. Picking the right one can be a bit confusing. Before you make a choice, you should compare the different options based on:

• Goals and objectives

- Risk Apetite - Liquidity requirements - Investment horizon