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How Is Pure Term Insurance Plan Different From Term Plan With Return of Premium

The life insurance sector is very vast and there are a lot of coverage options available. Different life insurance providers offer varied plans with many benefits to cater to the requirements of their prospective customers. When we talk about term plans, there are two basic categories. Pure Term Plans and Term Plans with Return of Premium (TROP). Here we will have an overview on term insurance vs. return of premium.

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What is A Pure Term Insurance Plan?

A pure term insurance plan offers lump-sum benefits and regular income to the nominee in case of the policyholder’s demise during the tenure of the policy. However, there are no maturity benefits if the policyholder outlives the policy period. 

The benefits offered by a pure term insurance policy are:

Benefits

  • Offers the sum assured when the policyholder passes away. 
  • Low monthly/quarterly and yearly premiums. 
  • High death coverage.

Disclaimer: These are the generic benefits offered by most term insurance providers. You may get additional benefits subject to the insurer's policies.

What is a Term Plan with Return of Premium (TROP)?

On the other hand, a term plan with maturity or survival benefits is known as a term plan with a return of premium or TROP. So in this type of term plan apart from basic death coverage, you get a return of premium if you survive the policy tenure.

Even though with TROP you have to pay a higher premium than the basic term plan, but you get the survival benefit. So, with this, all you have to do is simply select the assured amount and the policy period you wish to purchase and then pay the premiums. The insurer will refund the premiums to you at the time of policy maturity.

Mentioned below are the top benefits of TROP.

Benefits

  1. Maturity Refund

    A TROP will refund your premium at maturity if you live beyond the policy tenure. You don't lose any premiums you have paid throughout the policy tenure. You get everything back.

  2. Assured Premium Returns

    A TROP plan ensures that policyholders are not worried about losing their money. This plan gives guaranteed returns on the premium paid, but not any additional premiums for coverage enhancements with the rider.

  3. The Paid-up Choice

    TROP offers a 'paid-up option' for people who don't have a stable source of income. This option assists policyholders in instances where they are unable to pay a premium.

  4. Flexible Premiums

    You can pay the premiums monthly/quarterly, or yearly. This policy allows you an option to choose the payment option that suits your financial interests. For example, if you have just started your job, you can opt for a single payment option as you may have other responsibilities to take care of.

  5. Tax Advantages

    You can avail of tax benefits with TROP in line with the existing tax rules. The premium paid and the amount you draw are exempt from tax under sections 80C and 10(10D) of the Income Tax Act 1961.

Term Insurance Vs. Return of Premium

Aspect

Term Plan With Return of Premium (TROP)

Basic Term Plan

Premium

Often 2-3 times more than the basic term plan premium. Depends on the insurer.

0.1% of the total Sum Assured.

Returns

Death benefit + return of premium in case of maturity of the policy. 

Only death benefit.

Tax Rule

You can avail of tax benefits within sections 80D and 10(10D)

You can avail of tax benefits within sections 80D and 10(10D)

Disclaimer: This is a generic term plan with return of premium comparison and some aspects may vary from insurer to insurer. 

Wrapping Up

When it comes to comparing term insurance vs the return of premium, your priority should be the death benefit. At the end of the day, life is more precious than money and should be protected at all costs. You can select a basic term plan that only provides death benefits. However, if you see term insurance as an investment and are ready to pay higher premiums, consider going with a term plan with a return on premium.

FAQ's

  • Q. Is a term plan with a return of premium (TROP) suitable for me?

    Answer: It depends on several personal factors such as your age, income source, lifestyle habits, and medical conditions. Analyzing your financial profile based on these key parameters can help you find the right policy.
    So, if you plan to purchase a term plan with a return of premium, you have to examine the benefits offered against such factors.
    Largely, TROP can be a preferable choice for people who fall under the following categories:
    • Unmarried
    • Married with children
    • Married with no children
    However, others can avail of this benefit too.
  • Q. What is the Need for a TROP if I already have a Basic Term Insurance Plan?

    Answer: A basic term insurance plan only offers a pre-decided monetary amount to the nominee if the policyholder dies during the tenure of the policy. It is not an investment plan. So, if the policyholder survives the maturity tenure, no money will be refunded for the premiums paid. As it is purely a death benefit plan, so it has low monthly/quarterly or annual premiums.
    However, a TROP's premiums are expensive because it pays back all the policyholder's premiums if they survive the maturity period.
  • Q. Can I surrender my TROP after purchasing it? Will I get a refund?

    Answer: If you stop paying premiums or surrender your term plan with a return on premium, the surrender value will be credited to you. However, this surrender value depends on the below conditions. It will also depend on your mode of premium payment.
    • The surrender value for TROP with a single premium is available after payment of a single premium.
    • For regular and limited pay variant TROP, it will apply to premiums paid for two years.
  • Q. I want to understand TROP by a real-life example. Please explain.

    Answer: The TROP scheme you bought comes with 30 lakhs Rupees as the sum assured for a tenure of 10 years. The annual premium you need to pay is Rupees 3000. 
    In case of your demise, the entire sum assured (Rupees 30 lakhs) will be paid by the insurance company to your family. However, if you survive your maturity tenure of 10 years, you will get back all the premiums you paid till the maturity period. 
    Premium paid per annum (in this case) x Tenure = Amount you will get. 
    Rupees 3000 x 10 years = Rupees 30,000.

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