Understanding How Term Plan with Return of Premium Works

In recent years, the need for term insurance policies has been felt by many as people gradually understand the importance of having a life-securing policy. Insurance providers have also made the whole policy buying process quick and seamless with their digital platforms, making it easier for people to browse, select and buy an insurance policy online.

However, many people still refrain from buying term insurance plans because if the policyholder survives the tenure, they do not benefit from the policy once it expires. If you have been holding back on buying an insurance plan for a similar reason, a term plan with return of premium is definitely a plan you could consider.

How Term Plan With Return Of Premium Works?

Insurance providers offer the return of premium option over and above the existing term insurance plan that you purchase. It’s a lucrative additional benefit that can help you buy a risk cover for the life secured while guaranteeing a refund of premiums if the policyholder outlives the term.

The working of this plan is pretty simple – if the policyholder survives the stipulated policy term, then they receive all the premiums they paid over the years. However, remember that if you add any riders to this type of plan, you do not receive the premium amount paid towards the additional coverage option

You can be single, newly married, or looking for comprehensive family insurance – term insurance could be a viable option for everyone. This is a type of term insurance policy that allows the policyholder to enjoy maturity benefit from the plan while financially securing their family with a risk cover for uncertain times.

Why Should You Be Opting For Term Plan With Return Of Premium?

There are ample variants available in term insurance plans nowadays, and one of those variations is a term plan with return of premium. This plan is known to provide a maturity benefit to the policyholder in addition to the death benefit that is the core of every term plan. Let’s check out the top 5 reasons why this plan could be exactly what you’re looking for:

1. Maturity Benefit

One of the primary reasons why most insurance buyers are attracted to this plan is the maturity benefit it offers, i.e., a refund of the policyholder’s payment if they survive the policy tenure. Every premium you pay towards your term plan with return of premium policy will be received as a maturity benefit. Excluding the premiums paid towards additional coverage, i.e., for various riders, the policyholder gets a guaranteed return of premium as the name promises.

2. Premium Payment Flexibility

You can select a premium paying frequency that you are comfortable with. For example, the term plan with return of premium policy offers monthly, quarterly, annual premium payment options, and you can make this situation basis your current financial position.

For example, individuals earning a fixed income might be more comfortable paying a premium every month. In contrast, people who make a lump sum but don’t have a monthly fixed payment might prefer going for the annual frequency.

3. Paid-Up Option

Term plan with return of premium offers you a paid-up premium option wherein you can default your premium payment by categorising it as necessary. This benefit comes in very handy for people who do not earn a fixed income every month. Using this benefit, you can ensure that your term plan with ROP remains active even in a situation where you cannot pay the premium.

4. Tax Benefit

Like most insurance plans, the term plan with return of premium also offers insurance benefits to the policyholder. In addition, according to the Income Tax Act (1961), section 80C allows you to claim a tax deduction against the premiums paid towards this policy for the respective financial year.

Also, whatever amount is received as the maturity benefit is considered tax-free according to Section 10(10D) of the same act. Therefore, with this insurance plan, not only can you secure your family’s future and financial independence but also look after your finances in the present and possibly receive a refund for your future.

Apart from these benefits, you can always increase the scope of your insurance policy by opting for additional riders like the waiver of premium, a disability rider, or the critical illness rider, to name a few. Using these riders, you can customise your plan and ensure that your family can be debt-free and worry-free even in your absence.

Bottom-Line: Term Plan With Return Of Premium Could Be A Win-Win!

While many term plans offer straight-up premium payment plans towards the coverage you opt for, a term plan with return of premium comes as a relief since it assures you can receive your money back when the policy expires, and the death benefit has not been claimed. If you are looking for a term plan that can help you align your finances as well, then a term plan with return of premium is the best way to go.