As a parent, your primary goal is to ensure your family’s financial security, especially when you are not around. A term insurance plan is a fundamental way to create this safety net. However, many people hesitate to buy term insurance because there is no payout if they outlive the policy. What if there was a plan that offered both life protection and a return of your premiums? This is where a term plan with return of premium (TROP) comes in, and it’s becoming an increasingly popular choice for parents.
This post explains what a TROP is, how it works, and why it is a suitable option for parents planning their family’s financial future.
What is a Term Plan with Return of Premium (TROP)?
A term plan with return of premium is a specific type of term insurance. Like a standard term plan, it provides a death benefit to your nominee if you pass away during the policy tenure. The unique feature of a TROP is the maturity benefit: if you survive the entire policy term, the insurer refunds the total premiums you have paid.
In short, a TROP gives you two potential outcomes:
- Death Benefit: If the life assured passes away during the policy tenure, the nominee receives the pre-determined sum assured. This provides financial support to the family during a difficult time.
- Maturity Benefit: If the insured person survives the policy term, all the premiums paid over the years are returned.
This dual benefit addresses a common concern with traditional term plans—the feeling that money is lost if no claim is made. TROP is an insurance product and not an investment vehicle. The premiums returned are subject to policy terms and conditions.
Why Are TROPs Gaining Popularity Among Parents?
The main reason for the growing interest in TROPs, especially among parents, is the money-back guarantee. Standard term insurance is a pure protection plan, meaning you pay for risk coverage, and that’s it. For parents who often manage tight budgets and plan for long-term goals like a child’s education or marriage, the idea of getting their premium payments back is very appealing.
This feature provides a sense of financial return. You get the peace of mind that your family is protected, but you also know that, if all goes well, the premiums paid will be returned to you upon the policy’s survival to the end of the policy term. This returned amount can then be used for other financial goals, such as retirement planning or funding a major expense. This makes term insurance for parents feel less like an expense and more like disciplined savings.
How Does a TROP Work? An Example
Let’s look at an example to understand how a term plan with return of premium functions.
Consider Ravi, a 30-year-old father, who purchases the Bajaj Life Smart Protection Goal Plan.
- Sum Assured: ₹50 lakh
- Policy Term: 25 years
- Annual Premium: ₹5,847 (Premium excluding taxes)
*The maturity benefit amount excludes any taxes paid.
Here are two possible scenarios for Ravi:
Scenario 1: Ravi passes away during the policy term.
If Ravi unfortunately passes away 10 years into the policy, his nominee will receive the death benefit of ₹50 lakh. The plan will then terminate. This amount can help his family manage their expenses and help his family manage their expenses and provide financial continuity.
Scenario 2: Ravi survives the policy term.
If Ravi lives through the entire 25-year policy term, he will receive a maturity benefit. The total premiums he paid will be refunded. In this case, he would receive ₹1,55,151 upon maturity. This lump sum can be a welcome addition to his savings.
*The product referenced is the Bajaj Life Smart Protection Goal Plan (UIN: 523L123V01). The premium of ₹5,847 is illustrative for a 30-year-old male non-smoker with a 25-year term and excludes Goods and Services Tax (GST) and other applicable government levies. Final premium and policy issuance are subject to underwriting and the policy’s terms and conditions.
Tax Benefits of a Term Plan with Return of Premium
Another advantage of a TROP is the tax benefits it offers under the Income Tax Act, 1961.
- Under Section 80C: The premiums you pay for the policy are eligible for a tax deduction of up to ₹1.5 lakh per year (under the old tax regime).
- Under Section 10(10D): The death benefit paid to the nominee is tax-free. The maturity benefit (return of premiums) is also generally tax-exempt, subject to the terms and conditions of the policy.
These tax benefits help reduce your overall tax liability.
Is a Term Plan with Return of Premium Right for You?
A term plan with return of premium combines financial protection with a savings-like benefit, making it a strong contender for parents. It assures that your loved ones are financially secure in your absence. At the same time, it returns your investment if you outlive the policy, providing you with financial liquidity at the end of the term. By offering life coverage and a guaranteed return of premiums, a TROP provides both life coverage and a return of premiums upon maturity, helping you protect your family while also saving for your long-term goals.
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