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Term life InsuranceJune 11, 2020

Here is how Term Life Insurance with Return of Premium works

Standard term insurance provides high life coverage to the insured person’s family in the form of death benefit against affordable premiums.

Here is how Term Life Insurance with Return of Premium works

Term Insurance with Return of Premium (TROP) also functions the same way; the only difference is TROP provides maturity benefit wherein all the premiums paid are returned if the policyholder survives the term of the policy. And in case untimely death of the insured person, the sum assured amount is given to the dependents like pure term insurance.

Let’s get into detail on how Term Insurance with Return of Premium works with the help of an example.

Policy cover

Rs 50 lakh


10 years

Yearly premium

Rs 4,500

Return of premiums

Rs 45,000 (4500 x 10)

According to this table, if you buy a policy of Rs 50 lakhs having a term of 10 years, then your yearly premium comes out to be Rs 4500. If you survive the policy tenure, you will get back all the premiums paid which will be Rs 45,000, and in case of your demise within the term of the policy, you will get the coverage amount that is Rs 50 lakhs.

A term life insurance only provides a death benefit. At the same time, the TROP plan offers the feature of returning all premiums paid as maturity benefit at the end of the policy tenure. And because of this premium back feature, the cost of premiums in a TROP plan is on a higher side as compared to a regular term insurance policy.

Here are the basic differences between term insurance and term plan with return of premium that will help you to know both the concepts in a better way.

     Term Insurance with Return of Premium

Pure Term Life Insurance

  It is a variation of term life insurance.

 It’s a pure protection plan and the simplest form of life insurance

  Term insurance with return of premium offers a sum assured as the death benefit and return of premiums as survival benefit.

 Standard Term Insurance only provides a death benefit.

  Here the coverage amount is comparatively low.

 The insurance coverage amount is usually 10 times of the annual premium paid.

  The cost of the premium is on the higher side due to maturity benefit.

 The premium cost is quite affordable.

  Suitable for those who want to gain some returns along with the advantage of insurance coverage.

 It is ideal for those who want financial security for their family

Now the question arises should you purchase a Term Plan with Return of Premium or not?

A joint survey – ‘Max Life India Protection Quotient’ 2.0 by Max Life Insurance and Kantar revealed that although more people in urban India are buying term insurance, still its penetration remains at 28 percent. This means that only 3 out of 10 people are investing in a term insurance plan as compared to 70 percent of the life insurance ownership in India.

People often tend to ignore the term insurance policy because it does not offer any maturity benefit. And they think that the premiums they pay get wasted. This lack of penetration or understanding impact their buying decision, and as a result, their family remains unsecured in case of uncertainty. Therefore, term life insurance with a return of premium plan is specially created to cater to this requirement of the policy applicants.

Some critical factors to consider while buying a TROP plan.

While buying a term policy with return on premium plan sounds attractive, but before making any decision, you should assess whether it suffice your requirements or not.

  • Term Insurance with the return of premium offers low coverage as compared to the regular term plan. This is because the premiums in case of TROP plan gets refunded as the policy term gets over.
  • The premiums for TROP plan are expensive that the premiums paid for a standard term life insurance. In some case, the premiums can be about 3 times higher than the normal ones. Hence, you first need to evaluate whether you can afford to pay the premiums or not. Secondly, you need to understand that the premiums paid back neither are adjusted for inflation nor earn any interest. So, before making any decision, you must look into aspects of TROP plan.
  • In case you default to pay premium payments, TROP plans offer ‘paid-up’ option. If you stop paying the premiums, at least after three years, the policy will continue, but you will get less benefits. The premiums are returned on maturity; however, the nominee receives reduced sum assured if the insured dies.
  • Term insurance with return of premium also offers the option to add rider benefits to your base policy; however, the additional premium paid for the riders will not be returned on maturity.

All insurance plans offer different benefits. And it is essential that you go through in and out of the policy carefully before buying the term plan. Remember that you should not consider only maturity benefit while purchasing term insurance with return of premium. Your buying decision should be based entirely on your requirements and whether you can afford the premium amount or not. Therefore, if you want some advice on the same, you can visit and speak to our insurance experts to make wise decisions, so that you don’t have to regret later.

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