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Term Insurance with Return of Premium (TROP)

TeamAckoMay 13, 2024

Term Insurance with Return of Premium (TROP) is a type of Term Life Insurance (TLI) policy that offers a refund of the total premium paid on the policy if the policyholder outlives the policy term. This type of policy provides the benefits of a traditional TLI policy, such as financial protection for the policyholder's family in the event of their untimely death, while also providing a savings component.

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What is Term Insurance with Return of Premium

TROP is a plan designed for those who want financial protection plus guaranteed returns of all the premiums paid. The policy term for TROP typically ranges from 5 to 30 years, and the premium is payable throughout the term. 

With a typical term life insurance policy, the beneficiaries receive a death benefit if the insured person dies within the policy term. However, there is no payout if the insured person outlives the policy term. 

In contrast, with term insurance with return of premium, if the insured person survives the term of the policy, it refunds all the premiums paid over the term and any additional benefits such as bonus or interest earned by investing those premiums with zero deduction on maturity.

How Term Insurance with Return of Premium Works

Here’s how Term Insurance with Return on Premium functions. 

  • The policyholder pays a premium for the policy term, which can be anywhere between 5 to 30 years. 

  • If the policyholder's demise is during this period, their nominee will receive the sum assured as per their wishes. 

  • If they survive till the end of their chosen tenure, they will get back all premiums paid along with interest on them. 

For example, consider the case of Radhika, a 35-year-old IT professional who is the sole breadwinner for her family. Radhika wants to ensure her husband and two young children are financially secure if something happens to her. She opts for a TROP that covers Rs. 1 crore for a 25-year policy term. In this way, she can rest assured that her family will receive the death benefit in case of her untimely demise. In addition, she will get a refund of all premiums paid if she outlives the policy term.

5 Benefits of Term Insurance with Return of Premium (TROP)

Term Insurance with Return of Premium (TROP) offers several benefits to policyholders. Some of its key benefits are as follows.

  • Protective benefits

If the policyholder dies unexpectedly, TROP provides financial assistance to their loved ones. The sum assured can cover financial obligations and provide for the family's future needs.

  • Guaranteed returns

You should get guaranteed yearly returns on your premium (usually between 7% and 8%). This means that if you have invested in an Endowment Policy and are not getting any returns, this plan would be better suited for you because of its guaranteed nature of payments.

  • Savings component

TROP offers a savings component in the form of a premium refund if the policyholder outlives the policy term. This makes it a good option for those who want a life insurance policy and save money in the long run.

  • Low premiums

Term Insurance policies, including TROP, have some of the lowest premiums compared to other types of insurance coverage. This makes it an affordable option for those with limited budgets and incomes.

  • Tax benefits

Premiums paid for Term Insurance policies are eligible for tax deductions under Section 80C of the Income Tax Act 1961.

Please Note: Tax benefits on life insurance are only tax-free under the old regime. All payouts over 5L are now taxable under the new regime for policies bought after April 2023. The sum assured the policyholder's family received is also tax-free under Section 10 (10D) of the same act. If you invest in a TROP plan and then withdraw money after 5 years or more without making any claims on the policy, then there will be no tax deduction at source (TDS). Suppose any claim is made before or during the maturity period. In that case, TDS will apply accordingly, depending on whether it is a partial or full withdrawal.

Eligibility criteria for Term Insurance with Return of Premium

Here are the eligibility criteria for TROP.

  • Minimum age

You can buy a TROP at the age of 18 years and above.

  • Maximum age

The maximum age to buy a Term Insurance policy is 70 years.

  • Maximum sum assured

The maximum amount that can be insured under this plan is Rs 10 lakhs (1 million rupees).

How to choose Term Insurance with Return of Premium

The following are the key aspects of how you can choose a term insurance with a return of payment:

  • Seek guidance from a Trustworthy Insurer: It's advisable to consult with an established and reputable insurance agent or company and discuss your specific requirements accordingly.

  • Evaluate Cash Value Growth: When considering a policy, please analyse different aspects that influence the growth rate of the cash value or investment component.

  • Select Premiums Within Your Budget: Compare premium rates different insurance companies offer. Then, choose the one that aligns with your budget.

  • Review Dividend Payment History: You also need to thoroughly examine the insurer's track record and history of dividend payouts.

  • Consider Withdrawal Flexibility and Loan Rates: Look for policies that offer flexible withdrawal. You may compare the policy rates around various insurers to select one that offers a favourable term.

Analysing these aspects helps you choose the perfect term insurance with a return of premium. You must consult a certified insurer or insurance company to help you find the right term.

Explore ACKO Life Flexi Term Plan

ACKO Life Flexi Term Plan is a highly flexible and affordable plan that promises to provide your loved ones with a financially stable future with the amount of money you choose for them. With an easy claim process and swift payouts, your loved ones can get the financial support they require without hassle during crucial times. The unique features of this term plan:

Adaptable Sum Assured

Flexible Policy Tenure

Flexible Payout Options 

Will Creation Service

Affordable Premiums

Easy Claim Process

Additional Riders Available: Additional riders are available to enhance the scope of your ACKO Life Flexi Term Plan coverage. They offer extra financial protection against risks like coverage for critical illnesses, accidental death, and even income support in case of a permanent disability

Choosing your Premium Payment Options: TROP

You can choose from the following premium payment options based on availability.

  • Annual premium payment: You can pay your premiums in one lump sum at the beginning of each year.

  • Half-yearly premium payment: In this case, you will be charged twice a year for your insurance policy (i.e., once every six months).

  • Quarterly premium payment: You will pay your premiums every three months instead of annually or half-yearly.

  • Monthly premium payment: If this option is available for your term plan, it will allow you to pay monthly instalments instead of being charged all at once when purchasing an insurance policy.

Claim process for Term Insurance with Return of Premium

The claim process for TROP is generally the same as for traditional TLI policies. Here are the general steps involved.

  • Notify the insurance company

In the event of the policyholder's death, the beneficiary or legal representative must notify the insurance company as soon as possible. The insurance company may require documents such as a death certificate to process the claim.

  • Submit the claim form

The insurance company will provide a claim form that must be completed and submitted along with any required documentation. This may include medical records, police reports, or other information related to the cause of death.

  • Review and evaluation of the claim

The insurance company will review the claim form and supporting documents to determine if the claim is valid and covered under the policy. This may involve an investigation or review of the policyholder's medical history.

  • Payment of benefits

If the claim is approved, the insurance company will pay the death benefit to the beneficiary. In the case of TROP, if the policyholder outlives the term, they will receive a tax-free return of the premiums paid.

It's important to note that the specific claim process may vary depending on the insurance company and policy. Review the policy terms and contact the insurance company for guidance on the claims process. Also Read: Life Insurance Claim Process and Required Documents

Frequently Asked Questions

Here’s a list of frequently asked questions and answers related to Term Insurance with Return of Premium.

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How much coverage can I get with Term Insurance with Return on Premium?

The amount of coverage you can get with TROP varies depending on the insurance company and policy. Typically, the coverage amount is based on factors such as your age, health, and income.

Is Term Insurance with Return on Premium a good option for everyone?

TROP may be a good option for those who want coverage for a specific time period and also want to receive a return of premiums paid if they outlive the term. However, it may not be the best option for everyone, and it's important to consider factors such as your budget, financial goals, and overall insurance needs before choosing a policy.

Can I convert a Term Insurance with Return on Premium policy to Permanent Life Insurance?

Some TROP policies may include a conversion option, which allows the policyholder to convert the policy to Permanent Life Insurance at a later date without the need for a medical exam. However, this option may be subject to certain conditions and restrictions.

How do I choose the right Term Insurance with Return on Premium policy? 

When choosing a TROP policy, it's important to consider factors such as the length of the term, the amount of coverage, the premiums, and any additional features or riders that may be available. Working with a licensed insurance agent or financial advisor can help you choose the right policy for your needs and budget.

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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