Insurance: Why should you buy term plan with return of premium?

Term insurance plans are usually meant to provide financial security to the policyholder’s dependents and kin in the unfortunate scenario of policyholder’s demise. Some subscribers, however, don’t subscribe to the idea of a vanilla term insurance  plan since there is no provision of return of their investment. 

Consequently, some policyholders opt for the ULIP (Unit linked insurance plan) because these plans double as investment instruments as well. 

They argue that the premium paid towards a term plan is a sunk cost, so it is better to opt for an investment instrument.

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Another alternative, meanwhile, for policyholders is to buy a term plan with return of premium, or TROP, wherein policyholder stands to get the premium back upon the maturity of policy.

What is TROP?

A term plan with return of premium (TROP) is quite similar to a standard term plan. It is just like a life cover and offers a death benefit to the policy’s beneficiaries.

However, the key element that makes it distinct is the return of premium along with maturity benefit applicable. So, the policyholders stand to benefit from a term plan with return of premium by making the payment of additional premium.

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You can choose the required sum assured and policy period and pay the premiums, accordingly. After the policy gets mature, the insurer returns the premiums paid to the policyholder.

Added advantage

There is no denying the fact that TROP plan is similar to a term plan but offers an added advantage of return of premiums paid.

Rhishabh Garg, the Head of Term Insurance at Policybazaar, says that while the fundamental purpose of a term plan is to ensure financial protection for dependents upon the policyholder's demise, a term return of premium (TROP) plan offers an added advantage. 

“Under this plan, policyholders can reclaim all premiums paid if they survive the term. This feature appeals to individuals seeking to maximise their term insurance investment by securing both financial stability and the possibility of a premium return upon surviving the policy term,” he added. 

However, not all agree to this since the TROP calls for a higher premium.

"Looking for premiums back in a term policy means you end up paying a much higher premium compared to what you would pay under a plain vanilla term policy," Suresh Sadagopan, a Mumbai-based financial planner told Livemint in an article here.