What is Term Return of Premium Plans and how are they beneficial?

Interestingly TROPs cover all the protection benefits laid out in regular term life insurance. What makes it more attractive are the add-ons, such as, conditional paybacks in case of accidental death or grave illness. It’s important to note ROPs are slightly expensive. For example, if you purchase a regular term policy of sum assured INR 1 crore for 25 years, the premium would cost nearly INR 10,000 annually. For the same sum assured and duration in a TROP policy, the premium will amount to INR 20,000 to 30,000 annually. The numbers stated here may vary in accordance with the policy purchased and the tax implications will also exist. However the difference of premiums is significant.

Here are some of the  benefits of TROP: Add-ons

TROPs offer additional riders in the event of accidental death or critical illness. This is an advantage that can’t be overlooked and is truly a value add.

Survival Benefits

The premium you pay over the duration of policy is hundred percent returnable if you survive your TROP plan. As stated above, this is what distinguishes TROPs from the normal term plans.  

Benefit of Tax

Section 80C of the income tax act permits you to avail tax benefits for the premium paid against your TROP policy.

Death Benefits

If you don’t survive your TROP plan for the stipulated duration, your nominee will be paid the entire sum assured as a death benefit. 

Go For Returnable TROP Policy

Many TROP plans are returnable depending upon its provider. This means, if you opt to discontinue your premium payment and would like to return the policy, your premium paid till that date will be reversed with pre-stated deductions. Don’t forget to discuss this with your policy provider before you invest in one.

Reliability

If you miss paying your premiums or opt to discontinue paying them, your policy/life cover still continues in process, however with reduced death or maturity benefits, as may apply with relevant calculations.

TROPs providers are in abundance. You must make a right choice to suit your needs. Remember, a badly-timed decision for a right thing is a wrong decision. You should focus on your needs of TROP and practice caution before you invest in it. Keep these pointers in mind:

• We know you have heard this – “Read all scheme related documents carefully”. So do that before you select any ROP policy.
• The sum assured must be sufficient to meet  the needs of your family members in case of any eventuality.
• Go with an insurer of repute. There are many new players in the market. You shouldn’t risk in the name of brand advertisements they claim. Credibility is everything.
• Also ensure the insurer’s calculations are fair and in appropriate ratios for settling any claims.
• Discuss in advance about premium payment cycles. Negotiate for the flexibility of quarterly or semi-annually premium payments. 

We all know every coin has two sides and so does TROP. But that’s for you to decide. They say the premium for TROP is overly inflated with respect to survival benefits it offers. Some claim, investing the same premium in a fix deposit account (FD) will yield higher returns than what TROP offers upon its maturity. It could be a meaningful argument because TROP pays back only the full premium paid as a survival benefit along with some or no incentive. But a fix deposit account, upon its maturity, returns the principal amount along with compounded interest which outshines any TROP survival benefit. However it’s still unfair to downplay what ROPs have to offer, because they provide a substantial sum assured for your family/nominee in your absence.