Whether we are 18 or 80, we all want to make sure our money is working hard for us. One of the popular queries when one is in the market for the best term plan is “What if I don’t die?”
That’s quite a funny expression, but a valid concern indeed. Most people get a bit gloomy thinking that the money they spend on insurance might just “not give them any benefit” if they remain healthy. Now, a term insurance plan with return of premium is a nice solution here.
This article will explain how it works and whether it is the right option for you.
Return of Premium (ROP) Feature
When you purchase a regular term plan, it is like you pay a very small amount either monthly or yearly. If any unfortunate event occurs, the insurer pays a large sum to your family. However, if you survive the term of the plan, insurance coverage ceases at that time. There is no payout to the policyholder.
A term insurance plan with return of premium is unlike that in a way. It still pays your family a hefty amount of money in case you die. On the other hand, if you were to live until the expiry of the plan, the insurer would reimburse you for all the premiums paid. This is like a “money-back” promise for life insurance.
Why People Like This Option
1. You Get Your Money Back
The biggest bonus of this plan is probably that unlike many other insurance policies, you don’t “lose” your money. For lots of people, just receiving that final check of a few lakh rupees after 20 or 30 years is really like getting a good reward for keeping healthy.
2. It Helps You Save
You can think of it as a savings account rather than an expense, simply because you know you’ll get the money back. It even helps folks who find it really difficult to save money on their own without a bit of compulsion to accumulate a small fund for their retirement.
3. Safety for Your family
Most term plans work the same way they provide you with a safety net. Your loved ones will be provided for if you pass away unexpectedly. With a return of premium term insurance, you have the satisfaction of a typical insurance plan plus a little something at the end.
Points to Think About Before Buying
1. It Costs More
This is the major drawback. The price of a term insurance plan that gives you your money back can be significantly higher than a regular plan. You might even have to shell out double or triple the amount for the same coverage. Basically, you are paying a premium for the privilege of getting your money back later.
2. Inflation
Value of money goes down with time. ₹1,000 today is worth more than ₹1,000 after 30 years. So the money you get back from the insurance company years later might not be as useful to you as the money you have now. You get the same amount, but the purchasing power of the amount will have decreased.
3. No Interest
The insurer typically just returns the exact premiums paid, without any interest. If you had taken that additional amount and deposited it in a basic savings account, you might have accumulated more money over the years.
A Simple Comparison: Sam and Alex
Suppose Sam and Alex are two pals who each desire a life insurance cover of ₹1 Crore.
- Sam opts for a standard term plan. He shells out ₹1,000 per month. He has enjoyed excellent coverage throughout 20 years, but in the end, he receives ₹0.
- Alex picks a term insurance plan with a return of premium feature. He pays ₹2,500 per month to get the same coverage. After 20 years, the company returns to him the entire amount he paid.
Alex has a whopping check of ₹600,000 coming his way. On the other hand, Sam carried an extra ₹1,500 each month with him for 20 years. What if Sam deposited that surplus amount, he could perhaps have more than what Alex got.
Is It the Best Term Plan for You?
The suitable plan for you will be the one that aligns with your perspective towards finances.
Opt for a Return of Premium Plan If:
- You are unhappy at the thought that you pay for a product or service and walk away with “nothing” in the end.
- You struggle to save and thus would like to have a plan that forces you to save.
- You are looking for a certain amount of money that you can count on on your retirement day.
Opt for a Regular Term Plan If:
- You want to spend the least amount for the highest coverage.
- You consider yourself a savvy investor who can put your money in mutual funds or gold.
- You want to have the minimum monthly expenses.
Things to Check Before You Sign
It is great that you want to consider a term insurance plan with return of premium as one of your options. Here are three important things that you should not forget to take into account:
- Exclusions: First and foremost, be very clear about what exactly is being returned. Generally, things such as GST or additional charges for health risks are not refunded.
- Plan Term: These types of plans generally yield the best results when you maintain them for a long period. In case you terminate the plan prematurely, you will probably not receive your full refund.
- Your Budget: Confirm that you will be capable of paying the higher INR price for the next 20 or 30 years. Moreover, if the price is too high and you stop paying, your insurance coverage may be at risk.
Conclusion
So, is a term insurance plan with the return of premium really a good investment? For some, the main reason a term insurance plan with return of premium comes first is the assurance it gives. It eliminates the fear of “losing” money from the premiums. Still, if you look at it only financially, a plain term plan is usually a better choice, as it is significantly less expensive.
The best term plan is the one that remains in force. After all, the main purpose of insurance is to protect your family at all times. Whether you want your money back or are just looking for cheap protection, the most crucial thing is to set up a plan right now.
Don’t think of insurance as complex. It is simply one of the things that can help you have a peaceful night’s sleep. Choose the one that suits your lifestyle and your budget, and then live your life to the fullest!
