Maximising benefits: Why choose term insurance with return of premium over a basic term insurance plan?
Providing financial stability for your loved ones is more crucial than ever. Term insurance plans are an economical method to give life insurance, but what if you could receive more for your money? This is where Term Insurance with Return of Premium (TROP) comes into play.
Unlike ordinary term insurance policies, which require you to pay premiums and only your dependents receive payouts in the case of your death, TROP provides a unique benefit: funds are returned at the end of the policy period if no claims are filed. This feature makes it a more appealing alternative for people trying to balance financial stability with savings.
Let’s explore why choosing a TROP over a basic term insurance plan can be a smart move, especially for those in India.
Reasons to choose term insurance with return of premium (TROP) over basic term insurance
Premium refund on survival
Premium refund benefit is the standout feature of Term Insurance with Return of Premium (TROP). All the premiums you pay into the policy are refunded if you outlive the policy term, making it an excellent choice for someone who wants to get something back on their investment. In effect, this is a savings mechanism in which the premiums are paid over the years and hence this becomes a disciplined premium paying mechanism. However, with a basic term insurance plan, you don’t get anything if you live up to the policy term, and the premiums you have paid are not returned. This is one of the reasons TROP is a good choice for people who want life coverage as well as the peace of mind that their money isn’t lost if they don’t make a claim.
Guaranteed maturity benefit
With a basic term insurance plan you pay premiums purely for life cover—there’s no maturity benefit if you outlive the policy term. For TROP, though, you are guaranteed a maturity benefit in the form of return of all premiums paid, so you don’t have to worry about your money being wasted. If you’re covered during the term, you get it back; if you’re not, you get no money back. What it provides is peace of mind, that should the policyholder pass away, they will get a payout to their family or, if they live, they will get the premium back, which is a win, win.
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Psychological peace of mind
The biggest hesitation that people have when they sit down to buy basic term insurance is that they are not sure that the premiums that they will be paying, even if there is no claim, will not be a ‘waste’. It’s discouraging for people who don’t like spending money on something they might never get any use from. This is where TROP provides the solution to this concern, by refunding the premiums paid at the end of the policy term, when no claim has been made. This alleviates the mental barrier some people have with term insurance and helps them feel that they haven’t “lost” anything if they survive the term.
Customisable tenure options
TROP plans provide for policy tenure ranging from 10 to 40 years. This is especially helpful to policyholders as they get to choose the term according to their long-term financial goals like paying fees of a child, to secure a home loan or prepare for retirement. Tenure is flexible so people can choose the plan that best suits their individual financial milestones. Flexibility is also available in such basic term insurance plans, but the lack of refund at the end generally prevents people from taking longer terms.
Tax benefits
TROP policies are similar to basic term insurance and are also eligible for tax benefits under Section 80C of the Income Tax Act, thereby helping you save up to ₹1.5 lakh in taxes on the premium paid. Besides, the maturity benefit (premium refund) is also tax free under Section 10(10D), if the policy conditions are fulfilled, it makes it even more attractive option. The double tax advantage (tax on premium paid and tax on maturity benefit) not only increases the financial returns from the policy, but also makes it more attractive than a term plan.
Affordability with benefits
TROP premiums are greater than those of basic term insurance plans, but the extra cost is offset by return of premium as a feature. It’s a value for money product for most policyholders and essentially you get life cover along with the promise of a refund. You pay a little more, but it means you also have coverage and savings, since, if you live that long, your money won’t be lost.
Financial discipline
The regular premium payment required in TROP policies promotes financial discipline. This constant outflow becomes a part of your financial planning over time. The premiums will be returned at the end of the term, so you know you will be incentivised to keep up with the payments. In contrast, with basic term insurance, there may be less motivation to continue making premium payments, as there is no monetary return at the end.
Low-risk investment
TROP is a risk safe and secure financial product for individuals with a low tolerance for risk. An example of combining the security of life insurance with a low-risk investment element, your premiums are refunded at the end of the term if no claims are made. Therefore, TROP offers a fantastic option to risk averse people who need guaranteed returns and ensure their family’s future. On the other hand, basic term plans do not have any returns and are nothing but life cover.
Family security and savings in one
TROP provides dual benefits: life cover protects your family financially and if no claim is made, you get your premiums back. The combination of these two factors makes sure that, even if you survive the policy term, you wouldn’t feel as if you did an investment that was wasted. As a more versatile option than basic term insurance, which provides only life cover without any kind of savings, protection and savings dual nature makes it more.
Rider options
TROP policies come with riders such as critical illness cover, accidental death benefits or a waiver of premium if you become disabled. Riders of these riders add to the utility of the policy by providing coverage beyond the basic life insurance. These add-ons make policyholders able to customise the plan more to meet their needs, which makes them more valuable than basic term insurance, where riders may be available but without the benefit of premium returns.
Ending note
Choosing between a Term Insurance with Return of Premium (TROP) and a basic term insurance plan can be crucial for your long-term financial planning. While a conventional term plan provides basic life coverage, TROP adds the benefit of receiving your premiums back at the conclusion of the policy if no claims are filed. This makes it more than simply a safety net for your family; it’s also a financial instrument that combines the power of insurance with savings.
TROP outperforms ordinary term insurance in terms of financial stability and assured returns in India. It offers peace of mind and flexibility, as well as the assurance that every pound invested either returns to you or safeguards the future of your loved ones.
