Term Insurance Regular Term Plans And TROP Decoded

Life insurance penetration in India is merely 2.74%, according to a report by the Insurance Regulatory and Development Authority of India (IRDAI). What is more worrisome is that it has been decreasing since 2009. The economic and social cost of not being insured can be huge if we come across an unfortunate incident in life. The entire family is left helpless if the sole breadwinner is not there.

There are many expenses involved to run a household like education of kids, day to day expenses, marriage, paying off debts, etc. Therefore, it is important to create a financial backup for your family in case of an unforeseen circumstance. Having a term life insurance policy is a must for building a financial safety net.

If you are planning to buy a term life insurance policy, you must do a bit of research in order to buy the right product for you. There are two types of term insurance plans-Regular term plans and Term plans with Return of Premium Option. In order to help you in making the right decision, we have decoded the types of term plans available in the market:

Regular term plans: It is the simplest form of life insurance. In a regular term plan, the insurance coverage is offered as a death benefit. The policyholder pays a premium against a sum assured for a chosen tenure. If the policyholder dies within the policy tenure, the nominee/beneficiary gets the sum assured as a death benefit. The death benefit is the sum assured payable by the insurer to the nominee/ beneficiary of the insured.

The nominee is the person whom the policyholder will nominate for receiving the sum assured after the death of the policyholder. The nominee could be the wife, child, or parents of the policyholder. He/she needs to claim term insurance after the demise of the policyholder. Term life insurance is one of the cheapest financial instruments available in the market that provides protection against risks such as death, disease, and disability. For a 30 years old male who is a non-smoker, a Rs 1 crore term life cover from Max Life, covering up to 75 years of age will cost Rs 1,046 per month only.

Moreover, premiums of term plans are locked till the end of the plan. So, you will be paying the same premium every year. Investing in a term plan at a younger age will be highly beneficial for you as the premium will be very less.
You can also choose optional benefits with your insurance policy on payment of additional premium. These benefits include comprehensive accident benefit, waiver of premium, critical illness benefit, life stage benefit, etc.

Term plans with return of premium (TROP): In these types of plans, premiums are returned to the insured if he/she survives the policy tenure. These plans offer insurance coverage as a death benefit along with the benefit of the return of premium as a survival benefit in case the insured survives the entire tenure of the policy. The premium charged by term plans with return of premium is considerably higher than regular term plans.

For example, Mr. Pawan buys a Rs 1 crore regular term cover for a policy term of 30 years and pays an annual premium of Rs 12,000. If he dies, during the policy tenure, his family/nominee will get a sum assured of Rs 1 crore. However, if he survives the policy tenure, he would get no benefit. Let’s say, instead of buying a vanilla term plan, if Mr. Pawan had bought a TROP, he would have received his entire premium back if he had survived the policy tenure i.e. he would receive Rs 3,60,000.

TROP plans are suited for those investors who are looking for returns along with the benefit of insurance coverage. A common perception amongst most Indian investors is ‘what or how much will I get in return?’ The majority of us think this way, especially when choosing insurance products. We all want something in return for any investment made in a financial product. The concept of not getting any benefit in case of survival of the policy term had left people with the question of whether they should invest in life insurance plans that provide some return. Therefore, insurers introduced Term Plans with a return of premium option.

Generally, customers who want to buy term insurance for a shorter period can buy TROP. These plans work like an automated savings plan, pushing you to add to your savings every month/year. You can use the premiums paid back for your child’s education or marriage. However, you must note that TROP is comparatively expensive than regular term plans and the maximum policy term is lesser than regular term plans. So, it completely depends on your purpose and affordability for choosing the type of term plan.