Personal Finance

How to get back your entire term insurance premium

Bavadharini KS BL Research Bureau | Updated on May 08, 2021

‘ROP’ plans return the entire premium paid if you survive the policy term

Two neighbours’ daily routine of watering plants leads to an interesting conversation

Bindu: These plants give back much more than the time and care we invest in them.

Sindu: Yes. Speaking of giving back, have you heard of the concept of return of premium or ROP in life insurance plans?

Bindu: No. What is it?

Sindu: It is literally what the name means. ROP is where the term plan returns the entire premium paid (excluding tax) during the policy term . A few insurers even return 110-150 per cent of premium paid.

Bindu: Wait. Did you say term plan? Terms plans don’t given any kind of returns to the policyholders. It is a pure risk cover. The policy terminates after the policy term.

Sindu: Yes, exactly. Many policyholders who survive the policy term feel they don’t get anything in return. So for them, term plan with ROP (TROP) variant was introduced.

Bindu: How does it work?

Sindu: Most insurers offer TROP as a rider or optional cover. Upon payment of additional premium, you can buy this cover. Here, you get life cover during the policy term and if you survive the policy term, 100 per cent total premium paid including underwriting extra premium (if any) under the base policy will be paid at the end of the policy term and the policy will terminate.

Bindu: Great! Do we get tax breaks on this as well?

Sindu: Tax benefits available on regular life insurance policies under Section 80C can be availed on ROP term plans too. Maturity benefit, i.e., the premium that is returned, is eligible for tax exemption under Section 10 (10 D). And, unlike the regular term covers, under TROP, the policy becomes paid-up. That is, if you stop paying the premium, the policy will continue to cover you till end of the policy term for a reduced sum assured (SA).

Bindu: Well, this is good!

Sindu: Yes. It appears to be. But hold your horses. There are a few things to keep in mind. One, the premium for this return of premium variant is higher than the plain- vanilla cover. Two, you get only the premium paid for the base cover. That is, if you had opted for any optional or rider covers such as accidental death benefit, critical illness riders or joint life, you will not get back the amount paid. And three, ROP has to be selected at the inception of the policy.

Bindu: Basically, if I don’t mind spending the extra money, then I can go for this cover. It not only protects my family in my absence during the policy term but gives me a financial cushion at the end of the policy term. It is not so bad.

Sindu: True that. But it is still expensive for a term cover. Instead, you can always invest that extra money paid as premium in alternate platforms and consider a plain-vanilla term cover. After all, insurance is for protection.

Published on May 08, 2021

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