Whenever financial security in the future comes to your mind, term life insurance is often the very first port of call. While it enables a fixed death benefit, you will have to pay your premiums regularly to ensure the same. It can be a considerable amount over the years. How about a way where you can get back most of the money you spent on premiums? The solution is opting for a term plan with return of premium. It gives you this benefit, albeit at a slightly higher cost.
Term Plan with Return of Premium – What Is It All About?
Conventional term plans have life coverage given for a particular time period. In these cases, insurers do not have any payments to make for those surviving the policy tenure. However, if it were a term plan with return of premium, then the base premiums (excluding taxes and additional charges) would be returned to the policyholder. This way, it serves two ends: securing life protection and ensuring a refund of premiums at the end of the policy term.
Key Features of Term Plan with Return of Premium
Term Plans with Return of Premium stand out among regular insurance because of the following key features:
- Life Coverage: The insurance company pays a guaranteed sum upon the policyholder’s demise while offering life coverage for a specific period.
- Return of Premium Facility: Base premiums will be refunded for those surviving the policy tenure, excluding taxes and extra charges.
- Tenure Flexibility: You can choose the term of your policy, although available tenures are subject to the insurer’s offerings.
- Riders: Optional add-ons such as critical illness benefits or accidental death benefits to enhance your coverage.
- Tax Benefits: Premiums qualify for tax deductions under Section 80C. However, premium refunds are tax-exempt under Section 10(10D) only if the premium does not exceed 10% of the sum assured, subject to other conditions.
Advantages of Term Plans with Return of Premium
Term Plan with Return of Premium benefits has several advantages, such as the following:
- No Premiums at Risk: For many people, the most serious shortcoming of a conventional term plan is that if you live through the term, there is no payment. The ROP plan does away with this worry, ensuring that your premiums will be refunded even if the policyholder outlives the policy term.
- Disciplined Saving: The ROP plan encourages disciplined saving by requiring regular premium payments and guaranteeing a premium refund at the end.
- Emotional Comfort: Many people prefer the idea of getting back their money. This benefit can be advantageous for those who hesitate to buy a term insurance contract because premiums are not refunded in regular term plans.
- Financial Security: An ROP plan combines financial safety with a premium refund, offering a sense of security that standard term plans may lack.
Is a Term Plan with Return of Premium Worth an Investment?
The key disadvantage of getting a Term Plan with Return of Premium benefit is the higher premiums. However, if your priority is getting high coverage with a refund of premiums, then having an ROP plan is worth considering. Ultimately, it all depends on your financial priorities and the importance of premium refunds in your financial planning.