Return of Premium Term Plan: How It Works and Who Should Consider It

A term insurance plan will always be a popular choice for people who want to secure their families in the future. This works if you want higher coverage amounts for a relatively lower premium. The key concern, however, is that no return is available in case the insured individual outlives the policy term. To tackle this aspect, insurance companies offer the return of premium term plan. It offers maturity benefits in combination with the benefits of regular term plans.

How Does It Work?

A Return of Premium Term Plan differs greatly from a regular policy. It offers life coverage for a fixed duration. The difference, however, is that if you survive this tenure, your premiums are refunded at maturity (excluding applicable taxes or fees in most cases). On the other hand, if you pass away during this time, then the insurer pays the sum assured to your nominees accordingly. Thus, the modus operandi is simple and easy to understand. It is quite similar to normal term plans with just one key point of difference.

Key Benefits of ROP Plans

• Refund of Premiums: Unlike regular term plans where premiums are pure insurance, an ROP plan gives you a payout if no claims were made at the end of the policy period.
• Life Cover: If the insured passes away during the policy term, the beneficiary will get the assured sum as per the death benefit policy of your term plan.
• Tax benefits: Since an ROP plan is a type of life insurance, the premiums paid towards it can be tax-deducted under Section 80C of India’s income tax laws, while the benefit at maturity is generally non-taxable under Section 10(10D), provided policy conditions are met.

Who Should Consider a Return of Premium Term Plan?

A Return of Premium Term Plan can be a suitable choice for:

• Risk-Averse Individuals: Individuals who do not want to lose their money if they survive the policy term can rest assured that they can return the invested premiums with an ROP Plan.
• Long-Term Planners: This plan provides security and a financial backup for people aiming to cover specific long-term financial goals, such as post-retirement expenses.
• Those Seeking a Balance between Protection and Savings: While a pure term plan provides only risk coverage, an ROP plan combines protection with a type of premium refund element.

Conclusion

Unlike regular term plans, it is important to note that ROP policies cost more in premiums—often 30-40% higher. So, before you make any specific investment, consider your budget and overall financial goals to ensure that this investment is what you need to support. However, the advantage of returning your premiums on policy maturity means that your invested money in premiums is largely safe. So, getting a Return of Premium Term Plan is well worth your investment as it assures you of returns in case of claims and the security of providing your family with financial support when you are no longer with them.