Term insurance, also known as term life insurance, is a widely sought-after form of life insurance plan. Its primary benefit is providing financial protection to your family members aka beneficiaries through a lump sum payout in the unfortunate event of your death. The policy's duration is predetermined in the policy document, making it known as term insurance. By investing in term insurance, you can safeguard your family's financial goals, ensuring they remain on track in the event of their absence.
How does a Term Plan with Return of Premium Work?
A Term Insurance Plan with Return of Premium (TROP) is a plan that comes with additional benefit of return of premium at the end of the policy term. This is a special feature in which if you survive the end of a policy term the life insurance company will return all your premiums paid. These type of plans are also known as zero cost term insurance plans. However, this additional feature comes with a slightly higher premium than a pure term insurance plan. Let’s understand this with the help of an example.
Suppose an individual purchases a Term Insurance plan with Return of Premium feature, with a life coverage of 500,000 for a term of 20 years and pays an annualized premium of 2,500 for 20 years. If the life assured passes away during the policy term, the beneficiaries will receive the life coverage amount. However, if the life assured survives till the end of the 20-year policy term, he/she will receive a refund of the total premium amount paid (20 x 2,500 = 50,000) minus applicable taxes, underwriting extra premiums, and premiums paid towards any riders, if any, at the end of the policy term.
The Edelweiss Tokio Life Zindagi Protect is one of the best term plan with return of premium feature as it ensures you a peace of mind with security of your premiums paid. It also offers an all-round protection to take care of your ever-changing responsibilities as well as increased cost of living. This term plan also ensures that your family remains well protected if and when the main bread earner of the family isn’t around.
Benefits of a Return of Premium Plan
With zero cost term insurance plan, you can opt to get 100% of Total Premiums Paid^ when your policy matures. This helps you prepare for the next chapter in your life with extra padding in your wallet.
- Maturity Benefit - The primary distinguishing factor between a pure term insurance plan and Term Insurance Plan with Return of Premium (TROP) is the maturity benefit they offer. Traditional term insurance plans do not provide any maturity benefit to the life assured at the conclusion of the policy term. Conversely, term plans with return of premium allow the life assured to receive a refund of the premiums they paid if no claims were made during the policy term when it reaches maturity.
- Cash Value - A pure term insurance plan does not possess any cash value or monetary worth as it solely provides financial security to the life assured. Nevertheless, in the case of a term plan with return of premium (TROP), you can receive a cash value of the premiums paid if you outlive the policy term.
- Tax Benefits: Although both types of term insurance plans provide tax benefits under Section 80C, 80D, and 10(10D) of the Income Tax Act, 1961, the return of premium term insurance plan exempts the maturity benefit received by the life assured from tax, subject to the policy's provisions.
- Surrender Value: If a life assured chooses to surrender a term insurance plan with regular premium payment, the plan does not offer any surrender value. However, in the case of a term plan with return of premium, the life assured is eligible to receive a certain percentage of the premiums paid as surrender value, subject to the policy's terms and conditions.
- Paid-up option in case of non-payment of premiums: If a life assured fails to pay the regular premiums in a term insurance plan, the policy lapses, and the policyholder is not entitled to any benefits. However, in return of premium term plans, the life assured can continue with the policy at a reduced sum assured benefit in case he/she is unable to pay the premium amount.
Both these term insurance plans cater to diverse customer needs and financial goals, and insurers provide them today. Therefore, it is essential to compare the benefits of both types of term insurance plans before purchasing and select the plan that best aligns with your needs. To know more about Edelweiss Tokio Life Zindagi Protect, click here.
^ The Special Exit Benefit shall be applicable on the premiums paid towards Life Cover and Premium Break Benefit, if any, and is not applicable on any additional premiums paid towards other Additional Benefit/s opted by the policyholder namely Child’s Future Protect Benefit or Better Half Benefit. This benefit is applicable provided all terms and conditions mentioned in the sales brochure are met. Please refer sales brochure for more details.
Swati Tumar - Travel & Finance Writer
Swati is a Writer in the day and an illustrator at night. Among her interests, she is quite fond of art and all things creative. She often indulges herself in creating doodles, illustrations, and other forms of content. She identifies herself as an avid traveler and shameless foodie.