Return of Premium (ROP) Rider

With a Term Life Insurance (TLI) policy, you're covered for the duration of the policy, which could be around 10 to 30 years. It gives your beneficiaries a payout if you pass away during the term of your policy. Here, premium payments are low because the coverage your policy offers is for a short time. One of the disadvantages of a term policy is that it doesn't give you your money back if you outlive your term. However, a Return of Premium (ROP) Rider is a good idea if you want your money back from the premiums paid for a Term insurance policy. In this article, we explore what a Return of Premium Rider is and how it works.

What is a Return of Premium Rider? 

A Return of Premium Rider is a unique rider for Term Life Insurance (TLI) policies. This rider gives you the amount of your paid premiums back if you outlive your policy. With an ROP rider, you get life coverage for the term of your policy, along with guaranteed money back (in the form of paid premium) at the time of maturity. However, because the ROP Rider offers you an extra benefit as part of your Term Life Insurance policy, the premiums you need to pay will increase.

What are the benefits of a Return of Premium Rider?

A Return of Premium Rider offers you all the features of TLI, plus added benefits. You have to pay an additional amount for the rider, but are assured of getting your money back. Here are a few important benefits that a Return of Premium Rider offers you.

• Maturity or Survival Benefit

Unlike a regular TLI policy, a Return of Premium Rider gives you a maturity or survival reward. Here, if you survive the entirety of your Term Life Insurance (known as maturity), you will get the full amount you paid in premiums back.

• Sum assured

The amount you want your beneficiaries to get after you pass away is known as the life insurance death benefit or sum assured. This sum assured is the only amount your family will receive from a regular TLI policy. A Return of Premium Rider may offer your beneficiaries a lower amount than what they would receive in a regular Term Life Insurance policy. The lower sum assured amount is because you will get your premium amounts refunded if you survive the policy term.

• Surrender value

If you end your term plan while it's active, your insurance company will give you a cash value called the surrender value. If you pay your Term Life Insurance policy premium in a lump sum, then your surrender value will be higher than if you had paid in smaller increments.

• Death Benefit

If you pass away during your Term Life Insurance policy with a Return of Premium Rider, your death benefit is the sum assured and will be given to your beneficiaries. The sum guaranteed is calculated according to your coverage and premium payments.

• Tax Benefit

Your premium payments are tax-free if you pay them up to a value of one and a half lakh rupees in accordance with Sections 80C and 10(10D) of the Income Tax Act.

How does a Return of Premium Rider work? 

Return of Premium Rider helps you add on benefits to your TLI policy. You should identify your goals and your family's financial requirements to find out what plan works best for you. Here’s how a Return of Premium Rider works. Let's suppose you are 25 years old and want to buy a Term Life Insurance policy with a Return of Premium Rider. Here’s your profile.  

• You're a healthy person

• You don't smoke or drink

• You have no health issues

You purchase a term life policy with a Return of Premium Rider and decide that your sum assured is Rs. 50 lakhs according to your current income and family's future needs. 

• You make annual premium payments for your term insurance policy which cost Rs. 10,000, over a period of 40 years. 

• If you pass away while your term life plan is active, your beneficiaries will get the sum assured which is Rs. 50 lakhs.

• If you outlive your term insurance policy, you will get a maturity benefit with your Return of Premium Rider. You will get approximately Rs. 4,00,000, which is equal to your annual premium payments of 10,000 over 40 years.

What should you know before you get a Return of a Premium Rider? 

A Return of Premium Rider ensures that you get your money back on premiums paid. This does not include any interest earned, nor any return on investment, since you're only getting the value of what you paid for in premiums. This rider is a good option if you outlive your plan, so that you and your beneficiaries can still get a cash value. 

If you're considering getting a Return of Premium Rider for your Term Life Insurance policy, you'll need to identify your needs and goals. We've listed a few key pointers to keep in mind when you plan to purchase an ROP rider. 

1. Budget

Because a Return on Premium Rider is an add-on which guarantees you your money back, it will cost a lot more than a regular term insurance policy. 

2. Return on investment

If you're planning to use your Return of Premium Rider as a savings or investment plan, there might be better (higher returns) ways to do so. You could invest in a mutual fund, bonds, or stocks, or even another kind of life insurance policy that has a savings and investment benefit.

Frequently Asked Questions

Below are some of the frequently asked questions on Return of Premium (ROP) Rider

Does a regular Term Life Insurance policy offer my money back if I outlive my policy? 

No, a regular Term Life Insurance policy only covers you for the duration of the policy. If you pass away during this time, then your beneficiaries will get your sum assured. If you outlive the policy, then neither you nor your beneficiaries get any amount. 

What benefits does a Return of Premium Rider have? 

A Return of Premium Rider for a TLI policy offers you your money back in premium payments once your policy term is over and you survive it. If you pass away during the term, then your beneficiaries get the sum assured. 

Will the Return of Premium Rider increase the purchase value of the policy?

As the Return of Premium Rider is an extra cover, it will cost more and increase the purchase value of the policy. 

Disclaimer: The content on this page is generic and shared only for informational and explanatory purposes. It is based on industry experience and several secondary sources on the internet, and is subject to changes.

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