What is a Term Insurance Plan with a Return of Premium, and How Does it Work?

What is a Term Insurance Plan with a Return of Premium, and How Does it Work?

The term life insurance policy with Return of Premiums (TROP) offers a refund of the premium paid on the policy if the policyholder survives the policy term. The term plan with return of premium policy provides financial protection for a policyholder’s family in the event of sudden death while also providing savings to the policyholder.

You can avail of several benefits by purchasing a return on premium term insurance. To choose the appropriate term plan, you can calculate a term plan premium and select a plan that fulfils your insurance needs within your budget.

Discover what a TROP is and how it works.

What is a TROP?

As a term insurance policy, TROP pays you back when the policy matures. Throughout the policy’s term, you pay yearly premiums. Survivor benefits reimburse you 100% of your premiums, referred to as “survival benefits,” tax-free if you live longer than expected.

The TROP program provides substantial financial benefits while lowering your policy cost to almost nothing. In the event of your death during the policy term, the death benefit is paid to your beneficiaries.

How Does Term Insurance with Return of Premium Work?

  • A regular term life policy requires the policyholder to pay premiums for a specified period of time.
  • Because part of TROP premiums is placed in a savings account with interest over the policy’s term, TROP premiums are generally higher than regular policies.
  • If the policyholder is still alive at the end of the term, they receive a lump sum payment equal to the accumulated interest plus the total premiums paid.
  • You should consider the pros and cons of TROP before deciding if it is right for you.
  • If you outlive your policy term, you can get a refund of your premiums.
  • If you want to get some of your money back and use it for something else, this can be a great way.
  • TROP policies may also benefit those hesitant to pay for something they may never use but want the protection of a term life policy.

Example of TROP Plan

Suppose you purchase a TROP policy having a premium of ₹100 per month and a death benefit of ₹5,00,000. If you chose to pay premiums over 20 years, you would pay ₹24,000 (₹100 x 12 months x 20 years).

The beneficiaries of your death during the term will receive the death benefit of ₹500,000. If you outlive the term, however, you will receive a lump sum of ₹24,000, equal to the total amount you paid in premiums over the 20 years plus interest.

However, term life policies with TROPs typically have higher premiums since a portion of the premiums goes toward an interest-bearing savings account. Accordingly, TROP policies are not always the most cost-effective option for all individuals.

Additionally, you may not get back all the premiums you paid if you cancel the policy before the end of the term since some of the money may have gone toward administrative fees.

Conclusion

The most fundamental type of life insurance is term insurance with a return of premium. Compared to endowment and ULIP plans, term insurance rates are significantly lower.

Term insurance is an excellent way to supplement other investments (particularly ULIPs) since it will pay out death benefits even if your other investments don’t. It is highly practical to leave a substantial amount for your family without paying more. Avail of the benefits mentioned above by purchasing return on premium term insurance.