Alyssa Lane
Term insurance with return of premium is a type of term insurance plan that provides a death benefit to the policyholder's beneficiaries and returns the premium paid if the policyholder survives the policy term. This is unlike regular term insurance, where insurers pay only when the insured person dies. Term insurance with return of premium is, therefore, a good option for those who want insurance coverage but are hesitant to buy regular term insurance, thinking that the money will go to waste if they survive the policy term.
| Characteristics | Values |
|---|---|
| Definition | Term insurance with return of premium (TROP) is a variant of a term insurance plan in which the entire premium paid (minus GST) is returned to the policyholder at the end of the policy term. |
| Main benefit | TROP offers a maturity benefit, which is not available with regular term insurance. |
| Who is it for? | TROP is suitable for those who want insurance coverage and are also looking for a medium of savings along with a life cover. |
| Premium | TROP premiums are slightly higher than those of regular term insurance. |
| Riders | Riders can be added to TROP for additional protection against critical illnesses, accidental death, etc. |
| Tax benefits | TROP offers tax benefits under Section 80C and 10(10D) of the Income Tax Act, 1961. |
What You'll Learn
Term Insurance with Return of Premium (TROP)
TROP works like a standard term plan. The main difference between the best term insurance with return of premium and a standard term insurance plan is the maturity benefit offered by Term insurance with return of premium (TROP).
Policyholders can benefit from a TROP by paying an extra premium amount. You can choose the needed sum assured and policy tenure and then pay the premium.
This plan is suitable for policy buyers who are looking for a medium of savings along with a life cover and those who need life cover that provides financial support to their loved ones in case of their absence.
- Return of Premium (ROP) Benefit
- Death benefits
- Tax savings benefit
A Term Plan with a return of premium (TROP) option provides additional benefits like accidental death benefit, waiver of premium, and protection against critical illnesses and disability.
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Maturity Benefits
Term insurance with maturity benefits, also known as Term Return of Premium (TROP), is a type of term insurance plan that provides a death benefit to the policyholder's beneficiaries in the event of their untimely demise and a maturity benefit if the policyholder survives the policy term. The maturity benefit is the refund of the total premiums paid over the policy term, excluding taxes and other additional premiums.
Features of Term Insurance with Maturity Benefits:
- Flexible policy terms
- Premium payment options
- Comprehensive coverage
- Additional riders
Advantages of Term Insurance with Maturity Benefits:
- Maturity benefit: Refund of total premiums paid
- Death benefit: Financial security for beneficiaries
- Tax benefits: Tax exemption on premiums paid
Disadvantages of Term Insurance with Maturity Benefits:
- Higher premiums: The premium amount is higher than that of pure term insurance plans due to the added maturity benefit.
- Partial refund: Taxes, rider premiums, and additional underwriting premiums may not be included in the refund.
- No investment option: The maturity benefit is not adjusted for inflation and does not include interest.
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Death Benefits
Term insurance with return of premium, also known as TROP, is a type of term life insurance plan that provides both a death benefit and a maturity benefit. This means that if the policyholder dies during the policy term, their beneficiaries will receive a death benefit, and if the policyholder survives the policy term, they will receive a refund of the premiums they have paid.
The death benefit provided by TROP plans can help the policyholder's family manage their expenses during a financial crisis. In the event of the policyholder's death, the beneficiaries will receive a lump-sum payment or monthly income for a specified period. This can provide financial security and peace of mind for the policyholder, knowing that their loved ones will be taken care of in their absence.
The death benefit payout options available under TROP plans vary depending on the insurance provider. Some common options include:
- Lump Sum: The entire life cover is paid to the nominee in one go.
- Monthly Income: The life cover is paid in equal installments over a fixed duration.
- Increasing Income: The monthly income for the nominee increases at a fixed rate each year.
- Lump Sum + Monthly Income: A portion of the life cover is paid as a lump sum, and the rest is paid in equal installments.
It is important to carefully review the terms and conditions of the TROP plan to understand the specific death benefit payout options available.
TROP plans also offer additional benefits, such as accidental death cover and critical illness cover, which can provide further financial protection for the policyholder and their family. These additional benefits may be optional or built-in, depending on the insurance provider and the specific plan.
When purchasing a TROP plan, it is essential to consider the financial needs and goals of yourself and your family. TROP plans can be suitable for individuals who are looking for both life coverage and a medium of savings. By paying an additional premium, policyholders can ensure that their loved ones will receive financial support in the event of their absence while also having the opportunity to receive a refund of premiums if they survive the policy term.
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Tax Benefits
Term insurance is a pure protection plan that offers coverage against an unfortunate event during the policy term. One of the most significant advantages of a term plan is the tax benefit associated with it. Term Insurance Tax Benefits can provide you with increased savings and better earnings. Here are some of the tax benefits of term insurance:
The premiums you pay towards your term insurance plan can help you save money in the present as a tax benefit. You can get deductions of up to ₹ 1.5 lakh under Section 80C.
The tax benefits are also extended to the death benefit given to the nominee. When there is an unfortunate event, the family receives the policyholder’s death benefit or sum assured, which ensures that the family gets the necessary financial protection it requires, without losing out on taxes.
A deduction of up to ₹ 25,000/- is also available under Section 80D on premiums paid for term plans with a critical illness cover option.
To strengthen their policy, policyholders can avail of certain add-ons or riders over and above a term insurance plan. In such cases, the insurer pays the total sum insured or a part of the sum insured, based on a particular illness that is specified by the insurance provider.
The premium paid for riders that are a part of the term insurance plan are deductible up to Rs 25,000 (Rs 50,000 for senior citizens) under Section 80D of the Income Tax Act, 1961.
The sum received as death benefit under an insurance policy is fully exempt from tax under Section 10(10D) of the Income Tax Act. In other words, the proceeds from the insurance policy are tax-free.
While normal term insurance plans pay the death benefit during the policy tenure, there is a return of premium term plan that refunds the premium paid after maturity, when the insured survives through the policy term. Even this premium refund is treated as tax-free under Section 10(10D).
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Eligibility Criteria
To be eligible for term insurance, individuals must meet specific criteria set by insurance providers. These criteria revolve around factors such as age, income, health, and lifestyle choices. Here is a detailed overview of the eligibility criteria for term insurance:
Age Criteria
Age is a significant factor in determining eligibility for term insurance. Most insurance companies have minimum and maximum age requirements, with individuals aged 18 to 65 years generally eligible to apply. However, it's important to note that specific age limits can vary among insurers and may be subject to change based on market conditions and underwriting policies.
Citizenship
Citizenship also affects eligibility, as many Indian insurers do not offer plans to individuals from other countries. Therefore, it is essential to check the eligibility criteria of the desired insurance company before purchasing term insurance from India.
Income Criteria
Insurers consider an individual's income as an indicator of their ability to pay premiums. While there may not be a fixed income threshold, policyholders typically need to demonstrate a stable source of income to ensure they can meet premium obligations. The sum assured, which is the amount paid to beneficiaries in the event of the policyholder's death, is often linked to the policyholder's income and is, therefore, a crucial factor in determining eligibility.
Health Status
Health plays a crucial role in term insurance eligibility. Applicants are usually required to disclose their medical history and undergo a medical examination or provide medical records. While pre-existing health conditions may not necessarily disqualify an individual, they can influence the premium rates offered.
Lifestyle Habits
Lifestyle choices, such as smoking or engaging in hazardous activities, can also impact eligibility and premium rates. Insurance companies consider these factors when assessing the level of risk associated with providing coverage. Risky behaviours may lead to higher premiums or even denial of coverage.
Occupation Type
Some insurers do not offer term plans to individuals in certain occupations, such as those in the army or working in mines due to the high-risk nature of their jobs. Therefore, it is essential for individuals to check their eligibility for term insurance before selecting a plan.
Policy Term and Sum Assured
The chosen policy term and sum assured also play a role in eligibility. Insurers may have specific limits on the minimum and maximum sum assured based on factors such as the applicant's age and income. Additionally, the selected policy term should fall within the age limits specified by the insurer.
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Frequently asked questions
Term insurance with a return of premium is a type of term insurance plan that provides both a death benefit and a maturity benefit. If the policyholder passes away during the policy term, their beneficiaries will receive the death benefit. If the policyholder survives the policy term, they will receive a maturity benefit, which is typically the total amount of premiums paid during the policy.
Term insurance with a return of premium works similarly to a standard term insurance plan, but with the added benefit of a maturity payout if the policyholder survives the policy term. The maturity payout is typically equal to the total amount of premiums paid during the policy term.
The main benefit of term insurance with a return of premium is that it provides both a death benefit and a maturity benefit. This means that if the policyholder passes away during the policy term, their beneficiaries will receive a death benefit, and if they survive the policy term, they will receive a maturity payout. Additionally, term insurance with a return of premium may offer tax benefits and the ability to add riders for additional coverage.
Term insurance with a return of premium may be suitable for individuals who are looking for both life insurance coverage and a medium of savings. It can be a good option for those who want the peace of mind of having life insurance but are hesitant to buy a regular term plan because they feel that the premiums will be wasted if they survive the policy term.
The main difference between term insurance with a return of premium and regular term insurance is that the former provides a maturity benefit, while the latter does not. Term insurance with a return of premium typically costs more than regular term insurance because it offers both death and maturity benefits.
