Term Insurance with Return of Premium (TROP)
Learn about Term Insurance with Return of Premium and how it can protect your family's financial future.
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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 offers 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.
The policy term for TROP typically ranges from 5 to 30 years and the premium is payable throughout the term. In case of the policyholder's unfortunate demise during the policy term, their nominee receives an amount equal to their sum assured. However, if they survive beyond this period, they receive their total premiums paid as well as any additional benefits such as bonus or interest earned by investing those premiums with zero deduction on maturity.
Term Insurance with Return of Premium (TROP) Benefits
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 be used to cover financial obligations and provide for the family's future needs.
Guaranteed returns
You should get guaranteed returns on your premium paid every year (usually between 7% to 8%). This means that if you have invested in an Endowment Policy and are not getting any returns, then this product 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 to have a life insurance policy and also 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 a limited budget and income.
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.
Additionally, the sum assured received by the policyholder's family 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). However, if there is any claim made before maturity or during maturity period itself then TDS will apply accordingly depending upon whether it is partial or full withdrawal respectively.
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.
In case of the policyholder's demise 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 (which depends on how long has passed since your last payment).
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 that 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.
Eligibility criteria for Term Insurance with Return of Premium
Here’s 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
When choosing a life insurance plan that offers a return of premium, it is imperative to consider several factors. To help you make the right choice here are some key points to remember.
Determine the coverage amount you need to ensure your family's financial security in the event of your unexpected death.
Ensure that the premiums fit comfortably within your budget so you can pay consistently without sacrificing other expenses.
Verify that the insurance provider has a high claim settlement ratio, indicating a track record of successful and prompt claim payments.
Choose a term plan that allows for flexible payment options, such as annual, half-yearly, quarterly, or monthly payments, to make it easier to keep up with premium payments.
By considering these simple guidelines, you can select a term plan with a return of premium that meets your specific needs.
Choosing your premium payment options
You can choose from the following premium payment options based on availability.
Annual premium payment
You can choose to 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 be paying 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 certain 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 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 return of the premiums paid, tax-free.
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.
Frequently Asked Questions (FAQs)
Here’s a list of frequently asked questions and answers related to Term Insurance with Return of Premium.
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.