Term Insurance with a Twist: Unlocking the Benefits of TROP
Term Insurance with a Twist: Unlocking the Benefits of TROP
We live in an era of excellence and experience. To maintain a higher quality of life for our families and ourselves, we prefer choosing to buy a bigger house, the most cutting-edge car, the latest gadgets, etc. With this urge to always do better and get the best, it is obvious that when you buy a term insurance plan, you expect that it also comes with the best possible outcomes. However, a term insurance plan can cater mostly to your insurance needs, it cannot be an alternative to savings and investments for the future.
Understanding Term Insurance and Payouts
Term insurance is coverage that offers protection for a specific tenure. If the insured individual passes away during this term, the nominee/nominees receive the sum assured. Thereafter, the policy comes to an end. In case the insured individual outlives the term, there is no payout, and the policy is terminated. So, typically if you survive the tenure of your term plan, you might NOT receive any payout.
However, despite being a pure protection plan where there is no investment component, a term plan does offer you the option to be eligible for a payout. Term Return of Premiums, better known as TROP, is a variant that is specially designed to help policyholders get more benefits out of the plain and simple term plan. If the insured survives the policy term, the premiums that have been paid so far will be returned in the form of a maturity benefit.
So, if you want your term plan to offer you a payout at maturity, you can consider a TROP. However, you need to know more about it.
Exploring the TROP Option
When your term plan ends, you have the following options:
- Extend the coverage: Your insurer may offer you guaranteed renewability with your term plan. At the end of the policy term, your insurance company can revise the premium to offer you coverage for some more time.
- Convert it: A lot of life insurance companies allow you to convert your term plan into a permanent life cover. The terms and conditions that are laid may vary from company to company.
- Purchase a new plan: If you are healthy and enjoy good overall health, you may be eligible to buy a new life insurance plan to continue the coverage. A new plan can be customized as per your current financial situation and your requirements.
- Move on: It is not really recommended, but if you have survived the term plan, and do not have too many familial responsibilities on your shoulders, you can move on without any coverage.
If you are looking to get some returns from your life insurance, you can opt for an endowment plan or a whole-life plan or a ULIP. You can also opt for the TROP option if you wish to invest in a term plan. To understand how TROP works, let us take a look at this example.
TROP in Action: A Real-Life Scenario
Mrs. Aparna Mittal, a 30-year-old healthy lady, opts for a TROP with a sum assured of INR 50 lakhs. The yearly premium for her chosen plan is INR 12,718 for 40 years (Aparna is 30 years, and the policy will cover her till she is 85 years).
Scenario 1: Mrs. Mittal dies before the policy term: The beneficiaries/nominees will receive the entire sum assured of INR 50 lakhs.
Scenario 2: Mrs. Mittal survives the tenure of the plan: Mrs. Mittal will receive the payback of her entire premium amount paid till maturity (12,718 * 40) = INR 5,08,720.
It should be noted here that if, in cases, Mrs. Mittal had opted for a regular term insurance plan and had survived the tenure, no benefit would have been received by her.
The Advantages of TROP
Term plan with return of premium offers combo benefits of death and maturity. The premium amount is a little on the higher side compared to a usual term insurance plan; however, the long-term benefits can surpass the initial expenditure with assured returns.
At the end of the term, you would be able to get maturity benefits, which would be a total of all the premiums that have been paid so far.
With the addition of add-ons/riders, you can enhance the coverage of your plan. You can opt for coverage against illness, accidental disability/death.
The premium for the plan remains the same throughout the tenure of your policy. Buying a term plan at a young age, therefore, becomes all the more advantageous as younger people typically enjoy a cheaper premium.
Just like a term plan, the policy premium of a TROP also qualifies for tax deductions of up to INR 1.5 lakhs. Under Section 10(10D), one can enjoy tax benefits on the payout received, both as a death benefit as well as a maturity benefit.
Important Considerations for TROP
Term return of premium plans offers a complete payback of premiums, but you must also bear in mind the following things:
- The premiums you pay would be much more than a regular term plan. Be prepared to spend almost two to three times the regular premiums for a term plan.
- Typically, the return benefits that you receive would not have any additional interest on them.
- Only when the insured individual survives the policy term will the maturity benefit be payable. In case of the death of the insured during the term, the sum assured will be paid to the nominee, and the policy will come to an end.
Conclusion
If you are looking for an insurance cover that offers protection, then a