Are Term Plans with Return of Premium Worth it?

Term plans are one of the most popular insurance plans. One of the primary factors that makes it popular is its low premium. Despite being popular, there is one issue with term plans – no return in premium. Therefore, to address this issue insurance providers introduced a term insurance plan that has a return on premium.

Different companies provide different ways of providing this return of premium. For example, Tata AIA term plan return of premium offers it in the form of survival benefits. However, before moving into the details about whether it’s worth it or not, let us briefly know what the return of premium means.

What is the Return of Premium in Term Life Insurance?

In a term insurance plan, a return of premium means giving back the amount of the premium that was paid by the policyholder during the policy term. Usually, this is the sum total of the total premiums paid. This amount is usually paid if the individual survives the policy tenure.

However, some insurance companies tend to provide a little extra with some specific plans. For example, the Tata AIA term insurance plan provides a 105% return on premium.

Benefits of Term Insurance with Return of Premium (TROP)

While term insurance is beneficial, TROP has some added benefits. Here are some of the important ones:

  • Return of invested money

One might argue that a TROP policy may give back your term insurance premium, but investing in savings can give better returns. However, it is important to point out that savings schemes usually do not provide death benefits. Moreover, the actual benefit of the TROP scheme is realized when compared with a term policy without a return of premium. 

By purchasing term insurance without any returns, it may seem that they are in a way giving away all your money to the insurance provider. Even though it is not the case, you might always feel better knowing that you have term insurance with the return of all your premiums.

  • Premium amount

Term plan premiums are one of the lowest when compared to other plans. However, if you take a TROP policy, the premium increases only by a bit. For example, if you compare the Tata AIA term plan premium for both its term plans, the difference may not seem significant.

Moreover, with TROP you are already getting the benefit of the return of all your premiums. So, even if the term plan premium is a little on the higher side, there is nothing to worry about. It will come back to you after the policy term.

  • Death Benefit + Riders

Usually, in the basic term plan, there is only a death benefit and there is no return of premium. However, with TROP you get some additional benefits over and above all the basic features of a term plan. 

Most companies provide the option of riders in TROP policy, which is absent from its basic term plan. For example, Tata AIA term plan return of premium has disability payouts, critical illness, accidental death rider and some other rider benefits.

  • Tax benefits

Another important benefit of the TROP scheme is the opportunity to reduce your tax liabilities. If you fall in the tax bracket, you can get up to 1.5 lakhs of deductions under Section 80C of the Income Tax (IT) Act, 1961, by paying your term insurance premium.

In addition, the payout received at maturity or as a death benefit is also exempted from tax under Section 10 (10D) of the IT Act. So, basically, you get double tax benefits when investing in a TROP scheme.

Parting Thoughts

There are numerous TROP plans available in the market. So, if you are interested in getting your returns back, you can invest in any one of them. However, since TROP is a guaranteed return plan, you have to be careful that you do not opt for such a scheme that has market-linked returns as they are not guaranteed. In addition, you should also look for those insurance providers who are trustworthy and have a high claim settlement ratio.