Return of Premium [ROP) for Term Life Insurance Policy in India: Explained

Return of premium is a term plan with death benefits, in which, if the policyholder survives the policy term, it returns the premium that’s paid. We tell you the benefits of investing in such a plan.

What does Term Insurance mean?

While there are many life insurance options available in the market, a term insurance is the purest of them all. The premiums that you pay towards an endowment plan or a ULIP are far greater, compared to the premium you pay in a term insurance plan, which also provides you an amount assured to cover your life. Aegon Life’s iTerm Plan offers you a life cover for 100 years by paying a  premium of Rs 755 only (the final assured sum and premiums may differ depending on the insurer).

A term insurance plan is also a smart way to backup any of your other vested interests. The obvious question that you might ask is how? If other avenues where you have invested in, don’t turn out to be fruitful due to unstable markets (specifically in the case of ULIPs), a term insurance ensures you get your death benefits. Term insurance is also cost-effective since it gives you an option to leave behind a considerable amount of money for your family, without burning a hole in your pocket.

What does Return of Premium mean?

Return of Premium term life insurance policy is also referred to as Term Insurance Return of Premium (TROP). Having all the benefits of a simple term plan, with TROP, you can even avail of income replacement and premium refund at maturity. Basically, ROP is a term plan with death benefits, in which, if the policyholder survives the policy term, it returns the premium that’s paid. On the other hand, in a regular term insurance, insurers pay only when the insured person dies. The following case study can help you understand ROP term life insurance policy better.

Consider a policy with a yearly premium of Rs 5,000 that has Rs 50 lakhs cover for a time of 20 years. In case of the insured’s death, the family will be paid the sum assured, that is, Rs 50 lakh. However, if the insured survives the entire term, the insurer will have to return the premium or Rs 1 lakh (Rs 5,000 x 20).

Aegon Life’ iReturn is an online term insurance plan that provides death benefits along with an inbuilt terminal illness cover. Unlike a simple term plan, iReturn gives you your money back if all goes well – so you get back the amount you pay as premiums at the end of the term.

Here are the top 5 reasons to invest in a return of premium term life insurance policy:

• Refund at maturity: If the policyholder survives the tenure, a TROP offers a premium refund at maturity. This way, you don’t lose the premium paid over the years. This makes it a very lucrative deal for policy buyers who are looking for term insurance covers, and are keen on receiving the money back. The TROP, in a way, tries to get the best deal for the buyer by combining the large cover of term plans, and the saving aspect of traditional plans such as endowment plans.
• Guaranteed returns on premiums: With an ROP plan, the policyholders need not worry about their money being returned to them as this policy assures them that. This policy provides guaranteed returns on the total amount of the paid premium, excluding additional premium(s) for enhancing coverage with rider, (if any).
• Paid-up option for non-earning investors: For people who do not have a fixed source of income, ROP has something called the ‘paid up’ option. This feature helps policyholders during instances when they default the payment of premium.
• Premium payment options: ROP plans provide an individual a variety of life insurance premium payment options, ranging from monthly to yearly, and other such options. This policy allows the buyer an option to choose the payment option that suits him/her the best. For example, if the policyholder has just started out his career, he can choose the singe payment option, as there are chances he might have other priorities to take care of.

• Get tax benefits: ROP provides tax benefits as per the current tax laws. Under section 80C and 10(10D) of Income Tax Act, 1961, the premium paid and the amount drawn are tax-free. Policyholders can optimize the premium amount they’ve spent for TROP to reduce their tax liabilities to a certain extent. The Income Tax Act allows a deduction of Rs 1.5 lakhs, if the amount is invested in the right channel.

To sum up

Having a term life insurance is a necessity today, as it covers your family’s finances after you. And with a return of premium term plan, you can be assured to get back your money in return. So go on, and get insured today!

II/Oct 2018/4460

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