Term Life Insurance with the Return of Premium: Is It Worth It?
Life insurance is a crucial tool in ensuring financial security for your family in the unfortunate event of your death. In India, many people opt for term life insurance because it is simple and affordable.
A term life insurance plan provides coverage for a specified period, and if the policyholder passes away during this term, the death benefit is paid to the family. However, there’s another option that has caught attention: Term Life Insurance with the Return of Premium (TROP).
But is this option worth the extra cost? Let’s find out.
What is TROP?
Term life insurance with the return of premium is like a regular term plan, but with one key difference: if you survive the policy term, the insurance company returns the premiums you have paid over the years. This feature is what sets it apart from the usual term insurance, where no money is returned if you outlive the policy.
For example, if you purchase a TROP for ₹50 lakhs with a 20-year term and pay ₹10,000 in premiums annually, you will get back the total amount of premiums paid (₹2 lakhs in this case) if you are still alive at the end of the 20 years.
Benefits of Term Life Insurance with Return of Premium
- Money-Back Guarantee: The biggest selling point of TROP is the return of premiums at the end of the term. Unlike regular term insurance, which many perceive as an expense, TROP gives you the satisfaction of knowing that your money is not “lost” if you don’t pass away during the policy term.
- Life Insurance Coverage: Just like standard term plans, TROP provides life insurance coverage. In case of an unfortunate event during the policy term, the sum assured will be paid to your beneficiaries.
- Tax Benefits: The premiums paid for TROP qualify for tax deductions under Section 80C of the Income Tax Act, allowing you to save taxes. Moreover, the maturity amount (i.e., the return of premiums) is tax-free under Section 10(10D), making it a tax-efficient investment option.
- Financial Discipline: For people who struggle with saving regularly, TROP can act as a forced savings mechanism.
Drawbacks of Term Life Insurance with Return of Premium
- Higher Premiums: One of the drawbacks of TROP is its higher premium compared to a regular term plan. However, this higher cost comes with the added advantage of receiving a guaranteed payout at the end of the policy term, making it a secure investment option.
- Lower Investment Returns: TROP is often seen as a conservative investment. If you invest the difference between the premiums of a regular term plan and TROP in a higher-return product like a Unit-Linked Insurance Plan (ULIP) or mutual funds, you may earn much higher returns.
- Limited Flexibility: In case you want to surrender the policy before its maturity, TROP might not offer good returns. Many insurers offer only a portion of the premiums back if you cancel the policy mid-term, making it less flexible than other investment options.
Is Term Life Insurance with Return of Premium Worth It?
TROP may be worth considering if you are someone who prefers the security of getting your money back, even at a higher premium. It offers a safety net for both life insurance and returns of premiums, providing peace of mind. However, it may not be the best savings or investment option if you’re looking to grow your money.
If wealth creation is your goal, investing the difference in premiums between TROP and a regular term plan in a unit-linked insurance plan or other investment vehicles may yield better returns.
Be sure to evaluate your financial goals, risk tolerance, and investment horizon before making a decision.
