Do You Get Money Back After Term Life Insurance?

So, can you get your money back after term life insurance? If yes, how? Find all the answers in this article.

Can You Get Money Back After Term Insurance?

Many term insurance policies have a money-back option while others do not. Mentioned below are two types of term insurance that you need to know:

1. Type 1: Term Policies That Do Not Offer Money-Back - Basic Term Insurance

   There are basic term insurance plans that focus only on the death benefits. Meaning, if a policyholder dies during the policy term, the nominee will receive the sum assured in that case.  However, if the policyholder outlives the policy term, no sum assured is given.

   Merits

   1. The life Cover is extensive

      Your whole premium for term insurance will cover the insurance cost since there is no cash value. The best part about term plans is the ability to obtain adequate life coverage for your requirements for comparatively low prices. The premiums for young policyholders are lower, and they remain the same till policy maturity.

   2. Premium payment flexibility

      The premium can be paid monthly, quarterly, or annually depending on your cash flow. You can pay the whole premium in one payment with single premium plans. This eliminates the need to make missed payments or for policy lapse.

   3. You can save on tax

      The most notable benefit of term plans is the tax deduction of premiums up to 1 lakh 50 thousand Rupees as per Section 80C (ITA, 1961). This benefit decreases your tax stress. For example, a term plan can help you save up to Rs. 46,800 if you are in the 30% tax bracket. 

      Additional rebates are available as per Section 80D if you choose to add health-related riders. Moreover, death benefits received by your beneficiary are also exempted from tax, subject to Section 10(10D), ITA.

   4. You can tune the coverage as per your needs by adding riders

      Riders can increase an insured's protection benefits at a minimal cost. These riders protect the insured's family against any possible emergency. Income benefit - This rider will allow the insured to supplement the amount assured by providing a regular income for his/her family.

      • Accidental death benefit - The policyholder's family will be paid extra if he/she is involved in a fatal accident.
      • Waiver of premium - The insured can cancel his/her plan at any time. The premium payment will be waived, and his/her life coverage will continue until the end of the term.
      • Coverage for critical illness - The insurer will pay a lump sum if the insured gets diagnosed with a critical illness. The insured can use the proceeds to pay for expensive treatments while keeping his/her savings intact.

2. Type 2: Term Policies That Offer Money-Back - TROP

   A term insurance policy that offers a money-back is also known as Term Insurance with a Return of Premium or TROP. As per the name of this policy, here the insurer returns the premiums paid by the policyholder if he/she outlives the policy term.

   Merits

   1. Premium return

      The important thing about a term plan with money-back guarantees is that the policyholder will receive all premiums paid for the policy in the event he/she survives the policy tenure. This feature is not offered in standard term plans.

   2. Very reasonable

      Although TROP plans tend to be more expensive than standard term plans, they can still be reasonable than other types of life insurance plans, such as whole life insurance, ULIPs, and endowment plans. It is an excellent choice for someone just starting their career who cannot afford high-end life insurance premiums.

   3. Optional riders

      A policyholder can purchase optional riders and add-ons to increase his/her TROP policy coverage. One can obtain coverage for features that are not usually covered by TROP plans with the help of add-ons. However, you will not receive the premium for these riders upon maturity.

   4. Tax benefits

      TROP is also an insurance plan that can be used to deduct taxes. Section 80C of the IT Act allows for tax deductions on premiums up to Rs.1.5 lakh that are paid in a financial calendar towards a life policy.

Getting Your Money Back Within the Free-Look Period

Another way to get your money back from your term insurance plan is canceling it within its free-look period.

The policy document comes with information about the free-look period when you purchase any type of insurance policy. During this tenure, you can cancel your insurance policy without any charges and get your money back on your premiums. 

You have a minimum of 15 days (or 30 days for electronic policies and policies issued through distance mode) to review the terms and conditions of the policy and return it if you are not satisfied. You can find the details of your policy’s free-look provision in your policy wordings.

You can cancel your policy at any time during the free look period. You will need to contact the insurer to cancel your insurance. 

Final Word

Whether you will get money back after term life insurance depends on your life priorities and the term plan you have chosen. Consider opting for a basic term insurance plan if life cover is your priority. However, a TROP plan is ideal if you wish to get your money back after term life insurance.

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