Term Insurance Plan Vs Term Insurance with Return of Premium

All of us must, at some point, go ahead and buy Insurance. While doing so, we research, talk to people, ask parents for advice, probably talk to agents, but mainly, we turn to the internet for answers. The entire process - right from selecting the right company, the right plan, the right time to invest in, the adequate premium can be rather hectic. There are hundreds of different policy options available out there and selecting the one that fits the needs can be overwhelming. However, what matters is, first, if we actually understand what that plan encompasses.

We have all been taught in school the different types of insurance policies and but never how to read the fine print. Generally, the main aspects of a policy we look at are the term insurance premium, payouts/ benefits and the time duration. Most people will go for a policy that pays them the most with the least premium. However, when you hear of a policy that even returns your premium, you sprint towards it. And, why not?

Here we compare Term Insurance plan with Term Insurance along with the return of premium plans so that you can make a well-informed decision.


 

Term Insurance

Term Insurance with Return of Premium

What is it?

A term Insurance plan is a plan that is for a specific period, and in case of death of the insured during that period, the beneficiary gets the insurance payment. However, if the insured outlives the policy, nothing is received.

Hence, you only get the death benefit, not cash/survival benefit.

A term Insurance plan with return of premium is a plan that is for a specific period, and in case of death of the insured during that period, the beneficiary gets the insurance payment. Even if the insured survives outlives the maturity period, they will be returned the premium paid.

Hence, you get the death benefit, as well as the survival benefit.

Time period

The coverage period varies from 10-30 years. However, it is specified in the plan.

The coverage period varies from 10-30 years. However, it is specified in the plan.

Death Benefits

A flexible death benefit that will be received by the beneficiary.

A flexible death benefit that will be received by the beneficiary.

Survival Benefits

No survival benefits.

As a survival benefit, the insured receives a sum of all premiums paid plus any bonus, if accrued.

Premium

Premium may vary by individual.

Premium is slightly higher than pure term plans.

Surrender

In case of surrender of the policy before the maturity, all the premiums paid are lost, and nothing is received.

In case of surrender of the policy before the maturity, only a small value of the premiums paid is returned, and the policy ceases.

Tax Benefits

Tax benefits received under the following sections:

Sec 80C - Premium paid is eligible for tax deduction.

Sec 10(10D) - Death benefit is tax-free.

Tax benefits received under the following sections:

Sec 80C - Premium paid is eligible for tax deduction.

Sec 10(10D) - Death benefit and the maturity benefit received at the end of the policy term is tax-free.

Why it works?

A term plan is the cheapest form of life insurance.

The term insurance premium is substantially low compared to any other form of insurance premiums.

A term plan with return of premium is the smartest form of life insurance.

It is also considered to be a win-win situation. In case the insured dies, death benefit is paid; in case he survives, maturity benefit is paid.

Why doesn’t it work? 

The premium increases with the age of the insured. In case the insured outlives the plan, all the premiums are lost, and no benefits receive.

The premium is significantly higher than that in a term plan. It increases with the age of the insured.

Although a return of premium is received, the real cash value is much lesser than if the same sum was invested in anything else.

Who should buy it?

The main aim of this term plan is to secure your family and loved ones through the maturity benefit after your death.

So, if you are self - sufficient and want to secure them, this is for you.

Mainly suited for people who have extremely low-risk appetite and high incomes. This is because the real cash value received by you of survival is much lesser.


To understand the difference between the two insurance plans, let's consider the following example:

Assume a 35-year-old individual takes a policy that covers a sum of INR 1 crore, for a period of 30 years. If this is a term plan, the individual will pay approximately INR 10,000 per year as the term insurance premium, but if this is a term insurance with return of premium, the premium will be INR 22,000.

After doing the math, in case 1 he pays INR 36,00,000 in premium while in case 2 he will pay INR 79,20,000 over the same period.

The only difference is, on surviving the term the insured will not receive anything from a pure term policy. However, the return on premium term insurance will give the invested sum of INR 79,20,000 back to the policyholder.

About the author:

Varsha Channa grew up in Delhi, India and graduated from the University of Delhi. She has been a keen Finance blogger from 5 years. She likes to read and learn about Finance through various ways. 

 

Guest 
on 26 February 2018
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