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Term Plan With Return Of Premium – Pros And Cons

Published On Oct 07, 2021

A standard term insurance plan pays out the sum assured, or the principal plan benefits, to the life assured's nominee(s) if he/she dies during the policy period. However, if the insurance holder lives the policy term, there are no accrued benefits in the event of the plan's maturity. However, some insurance companies offer a return of premium option, which allows the policyholder to receive the premiums paid during the policy period when the plan matures. This is especially advantageous since, in addition to the life coverage provided by a typical term insurance plan, ROP plans also provide additional guaranteed benefits at maturity. However, it goes without saying that this raises the plan's cost and the amount of premiums that must be paid. Therefore, there are a few considerations to make before opting for ROP term plans.

What Are The Pros and Cons of Term Plans With Return of Premiums ?

You must be aware of the many advantages and disadvantages of ROP programmes, as well as the elements that influence them. The different points that describe these are listed below.

Pros of Term Plans With Return Of Premiums 

  • Safe - Since the policy's cost is minimal, the risk is also low.
  • Additional Rider Protection - The option to add an additional benefit or rider makes it more desirable, as the policy and riders together form a Total Protection Plan.
  • Return of Premiums - Typically, these coverage plans include a guarantee that the premiums paid would be repaid. The rider payments, on the other hand, are not returned. The insured does not lose the premium paid during the term period because the policy guarantees premium recovery upon maturity.
  • Convenient - Unless the contract is cancelled, the premium for this type of plan remains constant throughout the policy's duration, allowing the insured to budget accordingly. It also prevents the insured from incurring additional costs as a result of increased premiums, as is the situation with other coverage types.
  • Tax Benefits - Furthermore, these plans offer financial advantages because the premiums paid can be claimed as a tax credit under the Income Tax Act.

Cons of Term Plans With Return of Premiums

  • Premium Returns Cost More - You can expect to spend a higher sum in the form of premium for your life insurance policy if you choose a Term Plan with Return of Premium Policy.
  • Survive the Policy Term -  A Return of Premium policy requires the insured to finish the term in order to get the money paid for the policy. If the insured dies before the end of the insurance policy period, the beneficiaries will receive the policy's death benefits, but not the premiums paid up to that point.
  • Keep the Policy Active - In the instance of a 20-year term policy, the insurance policy must remain active for the full 20-year period. If the policy fails before it expires for any reason, the insured does not get any of the premium money paid.
  • No Interest - Another point to keep in mind is that when money is returned, no interest is paid on it.

Take Away

Before choosing ROP plans, keep in mind that the premiums paid are relatively high when compared to standard insurance policies. The accrued benefits are, without a doubt, proportional to the premiums paid. However, when selecting a ROP plan, it is important to remember to conduct a thorough online comparison of the various plan alternatives and to select an insurance provider after reviewing the CSR (Claim Settlement Ratio). This allows you to make an informed decision based on your individual demands as well as the needs of your loved ones.

Also read: 

Term Insurance Benefits

Advantages And Limitations Of Term Insurance

Disclaimer: This article is issued in the general public interest and meant for general information purposes only. Readers are advised not to rely on the contents of the article as conclusive in nature and should research further or consult an expert in this regard.

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