Simplifying Life Insurance in India
Regular Term Plan vs Term Insurance with Return of Premium
source: livemint
Term insurance plans enable individuals to secure the financial interest of their households. If they pass away prematurely, their family gets a lump sum amount as a death benefit. Nevertheless, regular term plans do not offer any benefit if insured individuals survive the pre-specified policy term.
If you want to secure both survival and death benefits, you can go with term insurance with return of premium plans. Let us do a comparison of the term plan with the return of premium (TROP) with the regular term plan, to help you choose the suitable plan for you.
What Is a Regular Term Insurance Plan?
A regular term insurance plan is a policy in which insured individuals get only the life cover. In case they die within the policy period, their insurance company agrees to pay a certain sum to their beneficiaries.
This benefit allows one to protect their family's financial interest when unfortunate eventualities cause a stoppage of the overall household income. However, if policyholders survive the maturity period, their insurance companies will not provide any sum.
What Is Term Insurance With Return of Premium?
Term insurance with return of premium or TROP is a financial agreement to primarily give you a life cover like the term insurance plan. The additional benefit of this policy is a pay-out that you get after maturity.
Therefore, if policyholders pass away within the term, their beneficiaries will be able to claim the guaranteed death benefit. This way, insured individuals' families can get a financial respite after they stop being their source of income. Otherwise, if they survive until the term ends, insurance companies will be liable to return the premiums they have paid throughout the tenure.
What is the Difference Between Term Insurance and Term Insurance With Return of Premium?
Following table showcases the comparison of the term plan with return of premium (TROP) with the regular term plan:
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Regular Term Insurance Plan |
Term Insurance Plan With Return of Premium (TROP) |
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Regular term insurance plan does not offer any survival benefit. You can secure only the death cover. As a result, the liability is less for your insurance company since there is only one type of pay-out option involved in it. |
TROPs offer a dual advantage to customers. They get the survival benefit as well as life cover. Therefore, the liabilities of insurance companies are more in TROPs. |
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Regular term insurance comes with a much more affordable premium amount. At a low price, you will be able to secure a comparatively high sum assured. |
In comparison to the term insurance premium, the payables of TROP are higher. |
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Generally, you can get term insurance coverage till you are 99 years old. However, this period may vary from one insurer to another. |
You can generally get yourself covered for up to the age of 70 years with this TROP policy. |
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In this regular term insurance plan, you have the option to increase the sum assured amount at particular life stages. To increase this amount, you will have to apply to your insurance company. |
You cannot increase your sum assured in the middle of your policy term. You need to opt for the right amount of death benefits while purchasing the plan so that you do not face the necessity to increase it. |
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The term insurance policy can lapse if you avoid paying a premium within the grace period. Nevertheless, you get a chance to reinstate your policy up to a certain number of days after the grace period is over. You will also have to pay the penalty for this reinstatement. |
Contrary to a term insurance policy, a TROP plan continues and does not lapse if you fail to pay the premium. However, in such a scenario, the policy benefit amounts will decrease. |
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This regular term insurance plan does not let you claim any surrender value in case you decide to terminate the coverage. |
If you decide to discontinue your policy after a certain period, you can apply for a surrender value in TROP. The insurer will give you the amount they keep aside for maturity benefit. However, you will also have to pay a certain surrender charge in this scenario. |
What are the Similarities Between a Regular Term Plan and Term Insurance With Return of Premium?
For a proper comparison between the term plan with return of premium with the regular term plan, you need to know the common grounds between these two types of plan. Following are some similarities between TROP and term insurance plan:
- Tax Benefits: According to Section 80(C) of the Income Tax Act of India, you can leverage tax deductions for up to ₹ 1.5 Lakhs on both these types of term insurance policies. Furthermore, as per Section 10(10D), the sum assured amount of both types of term insurance plans may come with zero tax liabilities if it meets certain conditions.
- Riders: You can include riders or add-on covers with the regular term plan and TROP to secure supplementary coverage on top of the policy benefits of your base plan. You can buy several riders like this accident death cover, including critical illness benefit, waiver of premium, income benefit rider, etc.
Now that you are aware of the comparison of the term plan with return of premium (TROP) with the regular term plan, you can determine which plan will be more suitable for you. If you want to secure only the life cover at an affordable premium, you can purchase a term plan. Otherwise, you can go with a TROP policy since it also extends the survival benefit.
FAQs About the Term Insurance Plan and Term Insurance With Return of Premium
When can a term plan lapse?
Which shortcoming of term insurance plan does the TROP address?
Is the term insurance with return of premium worth buying?
Is TROP more costly than the regular term insurance plan?
Other Important Features of Life Insurance
Disclaimer
- This is an informative article provided on 'as is' basis for awareness purpose only and not intended as a professional advice. The content of the article is derived from various open sources across the Internet. Digit Life Insurance is not promoting or recommending any aspect in the article or its correctness. Please verify the information and your requirement before taking any decisions.
- All the figures reflected in the article are for illustrative purposes. The premium for Coverage that one buys depends on various factors including customer requirements, eligibility, age, demography, insurance provider, product, coverage amount, term and other factors
- Tax Benefits, if applicable depend on the Tax Regime opted by the individual and the applicable tax provision. Please consult your Tax consultant before making any decision.
