When it comes to planning your family’s financial security, the term insurance is usually the top product anyone would suggest. It’s cheap, easy, and has maximum coverage. But there’s a variant that’s catching up, term insurance with return of premium (TROP). In contrast to traditional term plans, TROP provides maturity benefits, which guarantee your premiums back if you outlive the policy term. Is it a win-win, though?
However, before you dive into this scheme, know if it matches up with your money goals or is just pretty on paper. This blog explores TROP plans in detail, their advantages, disadvantages, and if they really justify the investment.
What Is Term Insurance with Return of Premium?
Term Return of Premium is a term policy that not only pays a death benefit but also pays back all the premiums in case the policyholder survives the policy term. For instance, if you choose the best term insurance plan in India for a 30-year term with a ₹10,000 annual premium, and you survive the term, you will get ₹3,00,000 (₹10,000 x 30 years) at maturity.
This aspect makes TROP particularly appealing to those who are reluctant to purchase pure-term insurance as it “doesn’t give anything back if nothing happens.”
How Does TROP Differ from a Pure Term Plan?
The major difference between a pure-term insurance plan and a TROP plan is the benefits paid at the end of the policy duration. Though both policies provide a death benefit to the nominee upon the death of the policyholder, both provide a maturity benefit if the policyholder lives through the term only under TROP. This implies that in contrast to a pure term plan, which gives no returns on survival, a TROP policy pays back the entire premiums paid, minus GST and rider premium charges.
But this extra is at a price. TROP plans have much higher premium costs, usually two to three times pure-term insurance. Even then, both plans enjoy equivalent tax benefits under Sections 80C and 10(10D) of the Income Tax Act. Moreover, the returns on a TROP plan are lower compared to traditional investment vehicles, making it less appealing from the pure investment perspective. Thus, while a pure term plan is high on affordability and low on complexity, term insurance with a return of premium seeks to combine protection with an element of guaranteed return.
Who Should Look for a TROP Plan?
A TROP plan suits best those:
- Risk-averse people who are not at ease with the “use-it-or-lose-it” aspect of pure term insurance.
- People without any savings habits desire a type of forced saving coupled with protection.
- Young professionals with longer policy periods to come raise the overall return potential.
- Primary income earners in a household who wish to provide security and preservation of capital.
If you fall into any of these groups, it may be worth considering term insurance with a return of premium as part of your overall financial strategy.
Main Advantages of Term Insurance with Return of Premium
- Guaranteed Returns: Even if the policyholder outlives the policy duration, the insurer pays back the premiums paid (excluding taxes and rider charges). This makes the scheme akin to a “no-loss” deal.
- Tax Benefits: Similar to normal term plans, TROP policies provide tax deductions of up to ₹1.5 lakh under Section 80C and tax-exempt maturity under Section 10(10D) if the conditions are satisfied.
- Dual Benefit: Protection + Return: With TROP, you have life cover throughout the policy duration and a lump sum at maturity, hence a good choice if you want an insurance-cum-savings product.
- Low Risk: Being a non-market-linked product, TROP has little risk attached to it. You are aware of what you’re getting and when, without incurring the risk of a volatile market.
The Flip Side: Why It May Not Be Worth It
There are some significant disadvantages of TROP plans despite their benefits:
- Higher Premiums: TROP policies may be 2 to 3 times more expensive than a straight-term plan. That additional money might earn greater returns elsewhere.
- Lower Returns Than Investments: Even though you receive your money back, the internal rate of return (IRR) on TROP plans typically ranges between 3–5%. That is lower than returns from the Public Provident Fund (PPF), National Pension Scheme (NPS), or even fixed deposits.
- Less Flexibility: TROP policies tie your money up for a long period of time, typically 20–30 years. Early withdrawals generally mean losing the return of premium benefit.
A Smarter Option?
Buying a pure-term plan and investing the difference in premium in a mutual fund, PPF, or other instruments may be a better option for many.
Let’s consider the example:
- TROP Plan Premium: ₹20,000/year for ₹1 crore cover
- Pure Term Plan Premium: ₹7,000/year for the same cover
- Difference: ₹13,000/year
If you invest the ₹13,000/year in an instrument paying only 8% per annum for 30 years, you could build ₹15.2 lakhs. Compared to earning ₹6 lakhs in TROP, that’s a big plus.
This plan provides high returns as well as keeps the coverage for life at a low cost. It’s particularly pertinent when you are investigating the optimal term insurance policy in India since most of the leading players have pure term plans with versatile riders.
Analyzing TROP through a Thought Leadership Perspective
From an expert’s perspective, TROP plans try to solve the mental barrier that most consumers have: premia payments without a real return. However, this psychological comfort tends to incur an economic expense. A genuine thought leader would suggest informing consumers of the importance of protection as opposed to return, except if the policyholder particularly values capital preservation over wealth creation.
Furthermore, in the dynamic Indian financial environment, people today can avail themselves of more intelligent investment instruments and platforms. This renders low-yield, high-premium plans like TROP undesirable for the financially savvy and tech-enabled masses.
However, if one insists on “getting something back,” then opting for the optimum term insurance plan in India with a versatile TROP option may be a realistic trade-off.
So, Is It Worth It?
The answer depends on your mindset, financial literacy, and goals.
Yes, TROP is worth it if:
- You’re risk-averse and value the psychological satisfaction of money-back policies.
- You’re not confident in managing your investments.
- You want disciplined long-term savings with a safety net.
No, TROP isn’t worth it if:
- You prefer better ROI and can handle market-linked investments.
- You want more flexible savings and protection options.
- You are looking to optimize every rupee for maximum financial growth.
Conclusion:
Return of Premium Term Insurance provides peace of mind but at a price. Although it might be the perfect option for risk-averse customers who need protection and a lump sum return, most financial advisors recommend segregation of insurance and investment.
Instead, look for the best term insurance plan in India that suits your protection requirements, and simultaneously develop an investment portfolio that aligns with your growth expectations.
Ultimately, your decision must suit your risk tolerance, personal aspirations, and financial acumen. Insurance is not only about dying well, it’s about living smartly as well.
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