Return of Premium Term Plans: Worth It or Not?

Return of Premium Term Plan – An Overview

The return of premium term plan is a type of term insurance plan that returns all the premiums paid if you outlive the policy term, along with offering complete financial protection if something happens during the policy term. That is the major difference between traditional term insurance, which does not offer any survival benefit, and the return of premium term plan that returns the premium on survival, as implied in its name. Hence, the premium is also higher than the pure term insurance plan.

For example, 30-year-old Roshan working in an MNC buys a return of premium term plan with a sum assured of INR 1 Cr. Let us assume he pays a yearly premium of INR 20,000 for 30 30-year term. Suppose Roshan dies at the age of 53 (during the policy term), his beneficiary will be compensated with the sum assured of INR 1 Cr. No premium is returned in this scenario as the death benefit is paid. Suppose Roshan survives the policy period of 30 years, the insurance company returns the premium paid by him, i.e. INR 6,00,000 (20,000 X 30) at the end of the term. Return of premium term plans return the premiums paid after excluding GST and other charges to the policyholder who outlives the policy term.

Key Features of Return of Premium Term Plan

The following are the key features of the return of premium term insurance plan:

Death benefit:

Like a traditional term insurance plan, the primary feature of a return of premium term plan is financial protection against uncertainties. It pays the sum assured to the beneficiary on the untimely demise of the policyholder during the term.

Survival benefit:

This is the special feature of the ROP term plan that it returns the premium paid at the end of the term if the policyholder survives the policy period.

Surrender value benefit:

Some of the return of premium term plans may offer surrender value after a few years of the policy period, depending on the terms of the policy.

Flexible premium payment:

The policy gives flexibility to pay premiums in different frequencies like yearly, half-yearly, quarterly and monthly. There are also different payment plans like regular pay, single premium and limited pay options.

Tax benefits:

Premium paid for term insurance qualifies for tax deduction under Section 80C of the Income Tax Act, 1961. Survival benefit is also exempt from tax under Section 10 (10D) of the IT Act.

Benefits of Return of Premium Term Plan

The following are the important benefits of a return of premium term plan:

Financial protection:

The lump sum benefits on untimely demise during the policy term ensure the family’s financial future is secure even in the absence of the insured. The amount can be used for debt repayment, children’s education and more.

Psychological satisfaction:

Many people postpone buying term insurance at an early age, considering it a cost, as there are no survival benefits in traditional plans. Along with a financial safety net, the return assurance of ROP plans on survival gives a sense of savings and psychological satisfaction.

Drawbacks of the Return of Premium Term Plan

The following are the drawbacks of the return of premium term plan:

Higher premium:

One of the main drawbacks of the return of premium term plans is that the premium is significantly higher than that of traditional term insurance. The premium is generally two to three times higher than the traditional term plans.

The ROP term plan is not an investment:

Though the plan offers a zero-risk savings component, it is not an investment. The basic purpose of term insurance is to provide higher financial protection against unforeseen events.

Return of Premium Term Plans Vs. Traditional Term Insurance

Is the Return of Premium Term Plan Worth the Cost?

Return of premium term plan has both pros and cons. Despite its cons, the plan is suitable for a few types of individuals mentioned below:

1. Individuals with low risk appetite and who prefer money back for survival
2. Individuals who need psychological comfort to invest in insurance
3. High-income individuals who can afford a higher premium and save on taxes.

However, a return of premium term plan may not be suitable for young earners looking for affordable term plans that can offer higher coverage. At Jio Insurance Broking, you can explore various types of term insurance plans, including return of premium term plans from various insurance companies, to choose the best suitable one for your needs.

Conclusion

To sum up, choosing between the return of premium term plan and the traditional term plan can depend on your financial needs and preferences. If you need maximum protection at an affordable price, a basic term plan can be an ideal option for you. If you are looking for zero-risk, money-back assurance with psychological comfort, a return of premium term plan can be a great choice for you. It is important to consider the adequacy of the coverage, affordability and other additional features at the time of buying a term insurance plan.