For risk-averse families, the main priority when buying life insurance is to have peace of mind with a return on investment. This is where a Term Plan with Return of Premium (TROP) comes into the picture. TROP offers both financial protection and savings, making it appealing to those who don’t want to lose their money if nothing happens during the policy term.
Here is everything you need to know about this plan, how it works, and whether it is the best option out there for risk-averse families.
What is a Term Plan with Return of Premium?
When we talk about a regular term plan, we are talking about a plan that offers pure protection. Under such a plan, you pay premiums for a specific term, easily ranging from 5 to 40 years. During this period, if the insured individual passes away, the insurer pays a lump sum to the nominee. However, in cases where the insured survives, there’s no payout.
This is where a term plan with return of premium is different. Such a plan assures a maturity benefit, which is basically a refund/return of all the premiums that were paid if the insured outlives the term. This helps you feel like you haven’t lost your money, even if the plan doesn’t get used in the traditional sense.
Why Risk-Averse Families Prefer It
Risk-averse families don’t usually like the idea of having to pay for something they might not use. This is where TROP plans provide a middle ground. These plans ensure that your family is financially protected if something happens to you while ensuring that you still get your money back if you stay healthy and complete the policy term. It is essentially the return element of the plan that makes it both emotionally and psychologically satisfying for risk-averse individuals.
Benefits of a Term Plan with Return of Premium
TROP plans come with several benefits for the insured individual. Here are some reasons why a TROP plan can be a good fit for you.
- Refund of Premiums
One of the biggest benefits of TROP plans is that if the insured individual survives the term of the policy, they get back all their base premiums promptly. - Tax Benefits
The premiums paid under the TROP plans qualify for deductions under Section 80C of the Income Tax Act. Apart from this, the payouts are also usually tax-free under Section 10(10D), provided certain conditions are met. - Discipline in Saving
Think of a TROP plan as a forced savings mechanism. These plans help encourage financial discipline over a long period. - Peace of Mind
Among the many benefits that TROP plans have, the biggest gain is psychological. At the end of the day, you know that your loved ones are covered and that you’ll get something back even if all goes well.
Points to Consider Before Buying
We understand that the idea of getting your money back sounds great, but it’s essential to know both sides of the story.
- Higher Premiums
Most TROP plans usually come with significantly higher premiums when compared to regular term plans. Sometimes you could end up paying two to three times more for the same coverage amount. - Lower Returns
There is no doubt that you will get your premiums back, but the actual return on investment (ROI) is often quite low and usually between 1% and 3% annually. So, for anyone looking for higher returns, this might not be the best investment plan. - Less Flexibility
TROP plans can be quite rigid, where the terms of premium payment and term options are considered. So, for individuals wanting flexibility or to exit early, this might not hold much value.
Final Thoughts
The very first thing you need to understand is that any Insurance plan is not meant to be an investment. Its main goal is to offer protection. However, for risk-averse families who feel uncomfortable paying premiums with “no returns,” a TROP plan can truly be a more comforting solution.
This holds especially true when buying term insurance for parents. Though TROP plans usually come with lower returns, the emotional value of a returnable plan may outweigh the lower returns. At the end of the day, it is not about chasing the highest return but choosing what makes your family feel financially secure and emotionally at ease.
