In the constantly fluctuating world, it is important to predict one’s future financially. The easiest method to safeguard your family financially in case of any mishap is by taking up term assurance. Unlike pure risk term plans, traditional term insurance plans may not have the suitability of the investment to persons who are willing to get some returns on the policy they take. This is where the term plan with return of premium (TROP) comes into the picture. It is life coverage as well as the payback of the premiums that one has made in case the life of the policyholder survives the policy period, thus making it a perfect investment for any risk-averse investor.
In this article, we’ll explain why a term plan with a return on premium is a fantastic alternative for consumers who seek both risk insurance and a return on investment. We’ll also discuss the term insurance tax benefit associated with such plans, making them a smart financial decision.
What is a Term Plan with Return of Premium?
Term insurance plan with Return of Premium, or TROP, is a derivative of traditional term insurance. The main purpose of a term plan is to make the life of the policyholder secure by supporting the financial needs of the family of the insured person in case he dies an untimely death. There are no maturity benefits in term insurance plans, which can be described in basic terminology. This means that in the process of the policy period, the policyholder is not paid any amount if they survive the said period.
But in a term plan with a return of premium, the premiums paid during the years are returned to the policyholder provided he/she survives the policy period. This feature makes it preferred by conservative clients who fear the prospect of what they see as ‘wasting’ their premium monies in the event they do not transact.
How does the term plan with a return of premium work?
Let me illustrate it. Let’s say you decided to buy a TROP with ₹50 lakhs sum assured and a policy term of 30 years. Whereas if you lose your life during the course of the policy, your named beneficiaries would be rewarded with the ₹50 lakhs IA death benefit.
All of your 30-year premium payments would be refunded by the insurance provider, though, if you live out the whole policy term.
This implies that a TROP offers a combination of protection and savings since, in contrast to traditional term insurance, which only offers the death benefit, it guarantees that you will receive your invested premiums back at the conclusion of the policy period.
Benefits of Term Plan with Return of Premium
- Financial Protection and Savings
The outstanding feature of a term plan with return of premium is that it provides life cover and also gives the possibility to receive back the paid amount if the policy term has expired and the policyholder is alive. This allows you to recoup your investment in the policy, thus ensuring that your money is well used.
The conservative investors who would want to put their money where their money will be assured that TROP also provides for this since they would not lose their premiums.
- Tax Benefits
One of the most important aspects of any insurance policy is the tax advantage that comes along with it. Such a term insurance tax benefit is essential for a TROP. The premium to be paid to a TROP is tax deductible under section 80 C of the IT Act and limited to ₹ 1.5 lakhs per annum. Also, the maturity proceeds or the premiums paid to you are tax-free under section 10(10D) if the following conditions are fulfilled.
This means that the term plan with return of premium is a smart financial tool for all those people who are seeking to invest in a plan that will provide them with a direct tax saving advantage while addressing their financial needs.
- Affordability
However, the cost of a TROP is more expensive than a normal term insurance plan but it is cheaper than the endowment or money-back policies. The higher premium on the 30-year term policy is justified by the return of premium feature in case you survive the policy period.
- Peace of Mind
However, for the conformist type of people, a traditional term insurance plan could first appear as a risk because it does not offer maturity benefits. An ATROP, however, does away with this uncertainty. You get to have your family covered with a financial cushion during the existence of the policy contract, and on survival, all the invested premiums paid will be reimbursed to you.
Term Insurance Tax Benefit: An Added Advantage
You may be aware that insurance tax benefits are one of the many bullet points when considering investing in a TROP. Here’s how it works:
- Section 80C: Currently, via this policy, you can get deductions of up to ₹ 1, 50,000 in a fiscal year on the premiums that you pay. This can help reduce your overall taxable income; hence, there is a big issue with taxes to be paid.
- Section 10(10D): The amount of the premiums received back at the end of the policy term is tax-free as long as specific policy conditions are met and the total premium paid in the policy year does not exceed 10% of the sum assured.
These tax benefits indicate that a TROP is not just an effective shield against many of the financial risks which confront convicted persons, but also a sound strategy for optimising one’s tax status.
Which Individual Should Consider the Term Plan with Return of Premium?
A term plan with a return of premium is perfect for customers who want to take a life insurance policy but also want to get something back in case this customer lives longer than the policy period. If you are a low-risk-taker and seek a versatile financial product – both as an insulator and a savings instrument – a TROP is an ideal product for you.
This plan is also useful for those who intend to utilise the tax saving options available under sections 80C and 10(10D) of the Income Tax Act to defer a part of their income toward the premiums paid for the policy while making sure, their families are covered.
Conclusion
A term plan with a return of premium is like getting your cake and eating it too; there is life coverage as well as the paid premiums paid back to the policyholder. It is a very fair deal for every risk-averse investor who would like to have his or her investment protected without the risk involved. Furthermore, the term insurance tax benefit relating to such plans also adds to the overall appeal of maintaining readiness to meet a family’s financial needs while at the same time optimising tax relief provisions.
In your financial planning, a term plan with a return of premium can be the best option if you’re someone who wants both safety and returns.
