Comparing Regular And Return Of Premium Term Plans

• If Arnab passes away during the policy period,
  His nominee will receive a death benefit of Rs 1 Crore.
   
• If Arnab survives the policy period,
  He will not receive anything.
   

What Is A Return Of Premium Term Plan?
A return of premium term plan is a type of term insurance policy that secures your family's financial future if you pass away during the policy period. In addition to that, it refunds the premiums you’ve paid (excluding taxes) - if you survive the policy period.

Please note that you can avail of the return of premium option only at the time of policy purchase and not later.

Let’s take Arnab’s example again. He buys a return of premium term plan with the same sum assured and policy period. But, his premiums are Rs 25,000 (exclusive of tax) now. Here’s how the benefits will be paid out -

• If Arnab passes away during the policy period,
  His nominee will receive a death benefit of Rs 1 Crore.
   
• If Arnab survives the policy period,
  He will get back the premiums he has paid over the 20-year period (excluding the taxes).

i.e., 75,000 * 20 = 15 Lakhs.
 

Regular Term Insurance Plan V/S Return of Premium Term Plan

Which Is A Better Option - Regular Term Plan Or Return Of Premium Term Plan?
You may feel that a return of premium term plan is beneficial if you wish to receive some returns while also availing of an insurance cover to protect your loved ones. It offers the dual benefit of financial security and a refund of the premiums you pay.

However, this may not be the case. These plans may not prove to be efficient investment avenues for two major reasons -

?The premiums are quite expensive
The cost of return of premium term plans is quite high when compared to regular term insurance plans. Their cost is usually 2-3x that of regular term insurance.

?The returns are not inflation-proof
Under return of premium term plans, you get back the premiums you have paid only if you live beyond the policy term. And, the refund you receive includes no interest component and is not adjusted for inflation. If you consider the time value of money when calculating your premiums, you’ll notice that the value of money reduces over time. So, buying a return of premium term plan could be a risky decision, as you may receive a much lower amount than the actual premiums paid. It may not suffice your future needs and will prove to be a poor investment.

The best option is to purchase a regular term insurance plan adequate for your family’s future needs and then invest the extra premium you pay for a TROP plan into other better investment avenues during the policy term. By taking this approach, you can maximise the return on your investment while still ensuring that your family is adequately provided for.
 

Wrapping Up!
So, it is clear that although the TROP plan seems appealing, it isn't as good as it seems. Your family should therefore purchase a pure term insurance plan with adequate coverage, to make sure they remain financially stable, despite rising inflation. And if you have extra cash on hand, it would be better to invest it in other financial instruments that will give you better returns. A pure term insurance plan should be the cornerstone of your family's financial security, supplemented with other investments for greater returns.