Have you ever thought about how your family would cope if something untoward happened to you? It’s not a nice question, but it’s better to be ready. This is where term insurance comes into play. It provides your family with financial help when you’re no longer there. But did you know that there are various types of term insurance ?
Most people get confused when they hear Pure Term Plans and Term Plans with Return of Premium (TROP). Don’t worry if you don’t know what they are or which one is best for you. In this article, all are described in easy words so that you can select the best plan for yourself and your family.
What is Term Insurance?
Term insurance is a life insurance plan. It provides monetary security to your family for a predetermined duration, also referred to as a “term.” If the individual who purchased the policy dies within this term, the family gets a predecided amount of money. This is referred to as the sum assured or death benefit. This can be used to pay for expenses such as everyday expenses, home loans, the education of children, or any other fiscal requirement.
Term insurance plans are of various kinds. Two of the most sought-after ones are the Pure Term Plan and the Term Plan with Return of Premium.
Types of Term Insurance Plans
A term insurance plan protects in various ways. This is how both work:
- Pure Term Plan: It’s the simplest and lowest-cost term insurance. You pay a fixed premium amount every year. If you die within the policy term, your family will receive the entire sum assured. But if you survive the term, you won’t receive any money back. The purpose here is only protection, not savings or returns.
- Term Plan with Return of Premium (TROP): This insurance plan gives you the same coverage as a pure term plan. But here’s a twist. If you live through the policy term, the insurance company returns all the premiums you paid. That’s to say, you receive your money back, although it will not cover tax or additional fees.
What is a Pure Term Plan?
A Pure Term Plan is a safeguard for your family. Suppose you purchase a policy for 30 years with a sum assured of ₹1 crore. You pay ₹10,000 annually. If you pass away within those 30 years, your family receives ₹1 crore. However, if you live beyond the term, you don’t receive any amount back.
This is an easy and cheaper plan. That’s why it’s a great choice if you need to cover your family but spend as little money.
Why people like it:
- It is extremely cheap.
- You get a big cover at a low cost.
- It’s simple to comprehend.
- It is suitable for those with a limited budget or who want to spend less on insurance.
But don’t forget, if you survive the policy duration, you don’t get anything in exchange. Some individuals do not like this, although the insurance is extremely robust.
What is a Term Plan with Return of Premium?
A Term Plan with Return of Premium (TROP) offers you two advantages. It offers life cover similar to a pure term plan, but also restores the premium if you survive the policy duration.
Suppose you once more opt for a 30-year policy with a cover of ₹1 crore. However, the premium is now ₹20,000 annually rather than ₹10,000. If you die during the policy period, your family still receives ₹1 crore. However, if you live longer, the insurance company pays back all the premiums you have paid over 30 years, amounting to ₹6 lakhs. This plan is reassuring to individuals who do not wish to “lose” their money if nothing occurs.
Why individuals opt for it:
- It provides the same life coverage as a pure term plan.
- It pays back the money you invested in case you survive the term.
- It feels as though you are preserving something, not merely burning.
But it costs more. Plus, the cash you receive back doesn’t earn interest. So effectively, you are only receiving your own money back, not any additional amount.
Which One is Right for You?
Let’s put the two in simple words side by side.
In a Pure Term Plan, the cost is less. You can pay ₹10,000 annually for a cover of ₹1 crore for 30 years. That is, you pay ₹3 lakhs in total. If something goes wrong with you during these years, your family receives ₹1 crore. If you survive, you receive nothing in return. But your expense is lower, and your cover is higher.
In a TROP, the premium is higher. You can pay ₹20,000 annually for the same ₹1 crore cover for 30 years. You pay ₹6 lakhs overall. If anything untoward happens to you, your family receives ₹1 crore. But if you survive, you receive ₹6 lakhs back. But that ₹6 lakhs is merely the sum of all your premiums – it hasn’t grown or earned interest.
So, you have to ask yourself:
- Do I want affordable protection without returns? Opt for a Pure Term Plan.
- Do I want my money back even if nothing occurs? Opt for TROP, but prepare to pay extra.
Points to Consider Before You Decide
Before making your choice, consider some key points:
- Your budget: Are you willing and able to pay the additional premium of a TROP?
- Your goal: Do you just want protection, or do you want your money back?
- Your age: The earlier you buy, the cheaper your premium will be.
- Health condition: People in good health often get better deals.
Other savings options: Sometimes, investing the difference in premium elsewhere (like mutual funds or fixed deposits) can give better returns than TROP.
Conclusion:
Ultimately, Pure Term Plans and Return of Premium Term Plans are both good options, depending on your requirements. The objective of a term insurance policy is to provide financial security for you and your family members. It will make sure your family does not encounter financial difficulties if anything unfortunate occurs to you.
If you prefer cheap but effective cover, a Pure Term Plan is the intelligent solution.
If you prefer to have your premiums back as well as cover, a TROP could be the best option for you, but do keep in mind you are essentially paying extra for the return of your cash.
Whatever you decide, ensure that it aligns with your life objective, budget, and future aspirations. A bit of thinking today can keep your family away from huge troubles tomorrow.