When planning the future of your family, the most intelligent decision you can make is to purchase the correct life cover. Term insurance and term insurance return of premium (TROP) are some of the most popular plans today. But which one is better for you? Let’s simplify it in a few words for you to determine what will actually make a difference in your financial life.
What is Term Insurance?
Term insurance is the simplest form of life insurance. It provides you with a high life cover at a low premium. In case the policyholder dies during the policy term, the nominee receives the sum assured. But when the policyholder survives the term, no payout is made. It’s like renting a safety net. You pay for protection, but you don’t receive a payout if the event does not occur.
This type of plan is best for individuals who would like to provide financial security to their family in their absence, and who are comfortable without receiving any return on premium.
What is Term Insurance Return of Premium (TROP)?
Now, the TROP plan works a little differently. It also provides life cover, but with one extra benefit: if the policyholder survives the policy term, all the base premiums paid (excluding taxes, rider charges, and other applicable fees) are returned. This feature attracts individuals who hesitate to pay for something they may never “use”.
However, this benefit comes at a cost. TROP plans are more expensive compared to regular term insurance policies.
Key Differences
Term insurance is a low-cost life cover with no payment if you outlive the term. Term insurance return of premium (TROP) refunds all base premiums in case you survive the policy, yet the premium is more costly.
For example, a 30-year-old individual might pay ₹8,000/year on ₹1 crore term insurance. But the same cover under TROP might cost ₹20,000/year. Therefore, it is either a cost-effective insurance or a higher-priced money-back policy. It all depends on your priorities.
Which One Should You Choose?
The answer depends on what matters more to you: pure protection or getting something back.
- Term insurance is better when you want the highest life cover at the minimum cost. The money saved on premiums can be invested in mutual funds, SIPs, or PPF. They can potentially achieve higher returns. But keep in mind that market-linked investments are subject to risk.
- Term insurance return of premium can suit you more, if you do not want to risk losing your premium. This is particularly useful when you are not inclined to manage individual investments.
Conclusion
Term insurance and term insurance return of premium have the same basic purpose, which is to protect your loved ones. The difference, lies in how they provide that protection and what you receive in exchange. When you are only concerned about security and cost, a basic term insurance policy is a good idea. However, if you prefer receiving a return on your premium at the end of the policy, TROP might appeal to you. It is a great option if you are also comfortable with the higher premium it requires.
Always make decisions based on your budget. Consider your financial objectives, and comfort with investing. The plan that makes you feel secure about your family’s future is the one that truly adds value.