Purchasing life insurance is one of the best ways to ensure your loved ones are not led into financial woes. It provides you with peace of mind knowing your family will remain secure even when you are no longer here. Out of various types of life insurance policies, term insurance usually proves to be the cheapest and most feasible. But there’s one type that interests a lot of individuals, the best term plan with return of premium.
This kind of plan guarantees not only protection but also a refund of money at the end of the policy period. Sounds good, doesn’t it? But is it worth your money? Let’s get this clarified in simple words.
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What Is a Term Plan with Return of Premium?
A standard term plan is straight-up life insurance. It simply implies that your family will receive the sum assured only if something untoward happens to you within the policy term. Otherwise, you won’t get anything back.
A return of premium term plan, however, does reverse that. It reimburses you the entire premium amount you’ve paid if you outlive the policy term. So, if you pay ₹15,000 annually for 30 years, you’ll receive ₹4.5 lakh back at the end of it if you outlive the policy term.
So, it’s as if securing your family and saving your money safely. That’s why this plan is gaining quite a lot of popularity among individuals who look for both savings and security.
Why do Many People Like This Plan
Most people are reluctant to purchase a regular term plan as they think their money is “wasted” if they do not fall ill. A term insurance plan with return of premium ends. You receive the money you invested, and it is a “no-loss” situation.
It’s easy, you get a life cover or money back. You don’t lose anything. It brings emotional comfort to many Indian middle-class families.
Also, this plan makes individuals feel they are investing in something that pays them in the long run, even though they don’t incur any risk during the term. It’s protection with a reward.
Key Advantages of a Return of Premium Term Plan
The following are some of the key advantages that make this plan so valuable:
1. Life Cover Protection
Like a standard term plan, the plan provides complete life cover. In the event of the death of the policyholder during the policy period, the entire sum assured amount is received by the family. This brings financial security to your loved ones during trying times.
2. Return of Premium
This is the largest benefit. If you survive until the end of the policy, you receive all your premiums paid back to you. It provides a feeling of satisfaction that your money did not go in vain.
3. Tax Benefits
The premiums you pay can be deducted from tax under Section 80C of the Income Tax Act. The money you get at the end (maturity benefit) is tax-free under Section 10(10D), which is another wise tax-saving instrument.
4. Peace of Mind
You do not need to worry about losing your money or if you will earn returns. You either safeguard your family members or get back your money in either case, you gain.
5. Flexible Payment Options
A majority of insurance companies provide various payment options monthly, quarterly, annually, or limited pay. You can pick whatever is more suitable for your budget.
Who Should Buy This Plan?
Return of premium term plan is good for those who desire the security of life insurance but don’t want to get “nothing” in return.
This plan will best suit:
- Individuals who wish for a mix of protection and savings.
- Those who are willing to pay a slightly higher premium for peace of mind.
- Those who wish to remain insured for a long period (20-40 years).
- Those who are risk-averse and prefer assured returns over market-linked returns.
But if your prime objective is to achieve the maximum life cover at minimum cost, then a basic term insurance plan (without return of premium) can be more suitable. Let’s see why.
Term Plan with Return of Premium vs. Standard Term Plan
A standard term plan and term plan with return of premium vary primarily in terms of cost and payment. The standard term plan is less expensive to purchase, and it is a viable option for individuals who are interested in pure life cover only. Nevertheless, it does not give any payment if you outlive the policy duration. Unlike this, the return of premium plan is charged at a higher premium but guarantees to pay back all your premiums paid at the end of the term if you survive the policy period.
Both plans offer life cover throughout the policy term, so your family is assured of financial support if anything untoward happens to you. The standard term plan is most appropriate for those who desire high life coverage at a lower price tag. The return of premium plan is most appropriate for those who desire protection as well as the assurance of their money being returned.
Let’s take an example to understand it better. Suppose a 30-year-old buys a ₹1 crore life cover for 30 years. A regular term plan may cost around ₹10,000 per year, while a return of premium plan may cost about ₹25,000 per year. If the person survives the policy term, the regular plan offers no return, while the return of premium plan gives back ₹7.5 lakh (₹25,000 × 30 years).
But if you put the difference of ₹15,000 annually into other investments, for example, mutual funds or fixed deposits, you would receive more than ₹7.5 lakh. Thus, although the return of premium plan provides security and peace of mind, it can be a low financial return.
Things to Keep in Mind Before Buying
- Higher Premiums: The premiums for such plans are more than standard term plans, at times doubled or tripled. You must verify whether the additional amount is within your budget.
- Long-Term Commitment: Such plans are best when you hold them till the term ends. If you withdraw early, you might lose benefits or receive less than what you invested.
- Compare Policies: Varying insurers have varying features. Always compare policies online prior to purchase. Check for claim settlement ratios, premium prices, and benefits covered.
- Don’t Mix Goals: Keep in mind that the primary purpose of term insurance is protection, not investment. If you seek good returns, think of other forms of investments.
Should You Buy It?
So, should you purchase a return of premium term plan?
The decision is based on your own goals and mindset.
If you wish for pure protection at the lowest cost, a standard term plan is the ideal option. It provides your loved ones with a large safety net for a modest price.
But if you wish to have a feeling of confidence that your money will return, and you do not mind paying slightly more, then a term plan with return of premium suits you fine.
It’s the best for a person who prioritizes security, stability, and peace of mind over potential returns. It’s not the most lucrative, but it’s certainly one of the most satisfying emotionally.
Conclusion
A return of premium term plan is a safety blanket, it makes your family safe and pays you back your money if life is easy. It’s a perfect option for those who like safety more than risk and less complicated investments.
Before purchasing, always compare plans, read terms, and select the one that suits your needs and earning capacity. Remember, the ideal plan is the one that provides you and your family members with peace of mind. Your life and loved ones are irreplaceable. Protect them wisely.
