The first question that every investor asks is ‘what or how much will I get in return?’ A majority of us, quite often, follow this practice, especially when choosing our insurance products. We all want something in return for any investment made in a financial product. And then, there is nothing wrong about it. Each one of us wants to best utilise our hard-earned money in the most productive way possible. Though, we must also understand that the ‘returns on investment’ should not be the only criteria when choosing an insurance product.
But when it comes to life insurance, ROI (return on investment) does play an important factor. As per industry experts, customers expect some return from their life insurance policies, at least the capital. Over the last few years, term plans have become quite popular, especially among the young investors looking for a safe and secure way to financially protect their loved ones in case of their permanent absence.
Under a term plan, the beneficiary or the primary dependent is entitled to get the total sum assured as death benefit upon death of the policyholder. For instance, say Mr. Kumar buys a term insurance with a sum assured of ₹1 crore at a premium of ₹18,000 per annum with a term of 30 years.
Now, if he dies before the policy ends, i.e. within 30 years of buying the policy, his dependents would collectively receive ₹1 crore. However, if, in case, he survives the policy term, he would not get any survival benefit.
TROP plans
This concept of not getting any benefit in case of survival of the policy term, has left people with the quest of investing in life insurance plans that provide some return. The insurance market these days works on the very concept that while what customers need is the primary reason of any product design, what they want is equally important. This is why insurers have introduced term insurance plans with return of premium feature. Term Return of Premium (TROP) means that all the premiums are returned to the insured as maturity benefit. According to a recent research by a renowned insurance industry research group, term return of premium plans represent about 10% to 12% of term life sales.
Yes, though the numbers are currently quite low due to lack of popularity around the product, TROP is no doubt an excellent product offering both term life coverage and a refund of all of your premiums provided you outlive the policy term. In simpler words, TROP plans offer a full death benefit as well as the prerogative of cash windfall, provided you outlive the term. Considering the need of people for a life insurance product that offers guaranteed ROI, TROP plans are hard to beat. The product works out great for anyone looking for guaranteed cash value while having life insurance cover for a defined term.
As a policy seeker, you can select the term period that matches your specific needs and requirements. TROP plans work like an automated savings plan, pushing you to add to your savings every month/year.
For investors more concerned about the return, TROP is definitely a value-for-money product, promising guaranteed returns. In simple words, it is a term plan with death benefits which returns the premium paid if the policyholder survives the policy term.
For instance, consider a policy with ₹1 crore sum assured for 35 years for which the yearly premium is ₹25,000 providing cover up to 60 years. If the insured dies, the family will be paid the sum assured i.e. ₹1 crore. However, if the insured survives the term, the insurer will return the premium i.e. ₹6,25,000 (₹25,000 x 25).
Just in case, if at any point of your life, you decide to surrender a policy midway, you can do the same with a TROP plan.
It acquires a surrender value only after the first couple of years, but the surrender charges are a bit high. Although this may depend on the insurance companies, a TROP plan is generally available for a policy term of 20, 25, 30 and 40 years. For instance, you can buy a 20-year term life plan if you have a 20-year loan to repay and unfortunately, if something happens to you within the term, you won’t have to worry about the repayment of the loan. And in case you outlive the term, you will get back 100% of your premium invested.
Most TROP plans come with conversion options and riders as you have the prerogative of changing the premium term as per your specific needs and requirements. Though the premiums of TROP plans may appear on the higher side, it’s worth it to spend more to protect the ones you love the most. For convenience of the customers, insurers have introduced various premium payment plans that offer great flexibility.
The standard premium payment options available in the market include annual, semi-annual, quarterly and monthly. Some insurers even provide a single premium payment option wherein you can pay the premium for the entire term in one go. .
A great advantage of TROP plans is that the guaranteed return is tax-free.
(The author is chief business officer, life insurance, Policybazaar.com )