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| Edited By: Aalok Bhan |Source: DNA |Updated: Oct 01, 2019, 05:45 AM IST
The very basic purpose of a term insurance plan is to provide financial protection and hence, protect a family's lifestyle and dreams. Simply put, a policyholder of a term plan would pay premiums throughout the term of the policy, and in case of his/ her demise through the policy term, the family/ dependents would be assisted financially by the protection of the cover amount. A counter argument to this, is that in the case that the policyholder survives the term of the policy, he/ she stands to get no money back whatsoever on the premiums paid over the years. This was also one of the objections to consumers choosing a term policy and hence is where the basic idea of a 'Term Return of Premium' (TROP) benefit in addition to a term plan which could be opted on payment of additional premium germinated.
Widely gaining popularity, a 'Term Return Of Premium' (TROP) benefit helps gain dual advantage of protection through the policy term, as well as attain a return of premium at the end of it. TROP plan is a value-add over regular term plans to answer the evolving needs of new age customer who expects some return from his/her term plans so that there isn't a sense of financial loss at the end of the policy term. Thus, TROP offers a dual-benefit of financial security and long-term financial planning by providing a 'survival benefit' at the end of the policy term.
TROP plans are a highly attractive option for a customer who wants pure financial protection but is also looking to receive money paid as premiums over the years, back at the end of the policy term.
However, Term plans with TROP benefits charge a higher (almost double) annual premium as compared to regular term plans since the premiums paid for the TROP option are returned to the policyholder at the end of the policy term in case of no death claim. In effect, this means that the Term plan with TROP benefits becomes a zero-cost plan where the entire premiums that an individual has paid over the tenure of the plan is returned as a tax free lump sum.
As an example, if Person A selects a regular term plan for Rs 7,900 annually (Rs. 695.20 per month) for a sum assured of Rs 1 crore over a period of 30 years, he would pay the insurance company a total of Rs 2,37,000 over the said period. If he survives the policy term, he would not get any money back.
However, on the other hand, when the Person B selects a base plan with TROP benefit for a premium of Rs 15,900 annually (Rs. 1,399.20 per month) for a sum assured of Rs 1 crore over a period of 30 years, he would have paid the insurance company Rs 4,77,000 over the said period. Here, for a difference of Rs 704 per month, the policyholder would get the entire premium of Rs. 4,77,000 back after the policy term as a survival benefit.
TROP is a win-win scenario, providing both protection as well as money back. While in the case of the demise of the policyholder, the family is well protected financially by the death benefit they receive; in case he survives, he receives the money paid as premiums over the term of the policy. Not only does the TROP rider added to the base term plan ensure that the premiums you pay on your term insurance are not rendered sunken cost, but also plays a role in your long-term financial planning.
But just like every other life insurance product, whether or not the TROP benefit is right for a person, is a question which can be answered keeping in account a person's outlook towards money.
The writer is director & chief marketing officer of Max Life Insurance
