8 Key Benefits of Return of Premium Term Insurance Plans

1. Financial Protection

One of the main reasons to consider buying life insurance is to secure the future of your family. A return of premium term plan provides you with this essential financial protection. Your designated nominee is paid the full sum assured in case of your unfortunate demise during the policy term. This amount can be used by your family to maintain their lifestyle, pay off any debts, or meet any upcoming expenses, without any financial strain. Thus, ROP plans provide peace of mind, knowing that your dependents are taken care of.

2. Guaranteed Returns on Maturity

Unlike traditional term insurance, which entails non-refundable premiums, term insurance with return of premium promises guaranteed returns on maturity. If the policyholder survives the policy term, the entire premium amount is refunded by the insurance company (excluding rider premiums and taxes).

This feature addresses the primary buyer's concern: "What if I survive the policy term and get nothing in return?" The very essence of ROP plans is to eliminate any such worries going forward, making it a safer long-term financial option.

3. Premium Refund Offers Peace of Mind

One major psychological barrier that many Indians face with pure term insurance is that it does not offer returns if the insured survives the policy term. Return of premium plans address this concern by refunding all premiums paid. This premium refund feature ensures that the policyholders do not feel that their money has been wasted. In fact, it is considered more as a disciplined way of saving rather than an expenditure.

4. Tax Benefits Under Sections 80C and 10(10D)

Return of Premium (ROP) term plans also offer tax benefits. You can claim a deduction under Section 80C for premiums paid, up to ₹1.5 lakh in a financial year.

The maturity amount you get back is also tax-free under Section 10(10D) if certain conditions are met. The most important condition is that the yearly premium should not be more than 10% of the total sum assured (for policies issued on or after 1 April 2012). If the premium is higher than this limit, the refund may be taxed. So, ROP plans can act as both life cover and tax-saving tools, as long as you stay within the tax rules.

Also read: Term insurance tax benefits

5. Flexibility in Premium Payment Options

ROP offers vast flexibility in premium payment options. Payment options are usually monthly, quarterly, half-yearly, and annually. Some of these plans provide limited premium payment terms, wherein you pay for a few years while you enjoy coverage that lasts longer. Such flexibility makes these plans accessible and manageable across different income groups, especially for salaried individuals and self-employed professionals in India.

6. Customisable with Add-On Riders

Most ROP term insurance plans offer optional riders that improve the base cover. These include:

• Critical illness rider: Provides a lump sum on the diagnosis of specified critical ailments.
• Accidental death benefit: An additional sum will be paid over and above the life cover if death occurs on account of an accident.
• Waiver of premium: Waives future premiums in case of disability or critical illness.

7. Promotes Long-Term Financial Discipline

Term insurance with a return of premium conditionally encourages long-term commitment. Since the refund of the premium occurs only at the end of the policy term, policyholders feel inclined to remain invested throughout the term.

The nature of this long-term investment aids inculcating a disciplined saving habit in accordance with long-term financial objectives, such as children's education, retirement planning, or house purchases.

8. Peace of Mind

Lastly, ROP term insurance guarantees something that matters enormously: peace of mind. Knowing that you will either secure your family's future or get the money back is ever so satisfying. This kind of mental comfort is crucial in financial planning, mainly for first-time buyers.