Regular Term Plans Or TROP? Which Is A Better Option?

Term Insurance Plans are the simplest and most affordable form of Life Insurance. Term insurance plans are life insurance plans which promise to pay a benefit only if the insured dies during the term of the policy. There is, usually, no maturity benefit payable under the plan. Term plans are, therefore, called pure protection plans. Term plans versus other life insurance plans. Term plans are, in effect, a subset of life insurance plans. 

A term plan with return of premium is a non participating insurance plan. A term plan only offers death benefits but TROP offers the benefit of the return of premium as maturity benefits after the completion of the policy tenure. Because of the guaranteed feature, the premium rate of TROP plan is higher than a pure term insurance plan. It is designed for those customers who want to provide financial security to their loved ones along with the benefits of the returns. 

Benefits Of Purchasing Term Life Insurance

Here are the few benefits of term insurance: 

• Term Plans Have More Affordable Premiums

Given the nature of term plans, their premiums are much lower than other traditional insurance plans. In fact, among all life insurance plans, term plans have the lowest premium. This low premium allows you to afford an optimal sum assured so that you can ensure sufficient financial security for your family in your absence. Other life insurance plans, i.e., traditional plans such as endowment policies, on the contrary, have higher premiums. If you choose a high sum assured in a traditional insurance policy, the premiums become unaffordable. 

• Term Plans Allow Affordable Coverage

Given the huge difference in the premium rates, affording a high coverage under any life insurance plan, except term insurance, is difficult. The thumb rule states that you should have a minimum life insurance cover of 10 times your annual income or sufficient to meet future living expenses and value of financial goals after accounting for inflation. Only term plans can give you sufficient coverage without burning a hole in your pocket.

• Term Plans Can Be Used To Get Complete Future Financial Security

High coverage at affordable premiums is the only important factor which differentiates a term insurance plan from other plans of life insurance. While other plans might give you guaranteed returns, periodic money backs or lifelong annuities, term plans offer you the option of getting a sufficiently large sum assured at a low cost. This would allow you to give your family a complete sense of financial security at an affordable price.

• Term Plans Have No Saving Component

Other life insurance plans, like endowment or money back plans, have a saving element in them. They promise to pay either a death benefit in case of death during the term or a maturity benefit if you survive the term of the policy. Term plans, on the other hand, have no saving element (except for return of premium term plans). They pay a benefit only in case of death and the maturity value is, usually, nil.

Benefits of Term Plan with Return Of Premium Benefits

The main features of TROP are as follows: 

• Sum Assured

The sum assured in TROP plans refer to the life insurance cover that is offered to the insured person by the insurer at the time of signing up for the plan. TROP offers a lower sum assured amount as compared to pure term insurance policy, as the premium is refunded. 

• Survival Benefits or Maturity Benefits

The survival or maturity benefits offered by a TROP is what makes it different from a traditional term plan. Under a pure term plan an insured person does not receive any survival or maturity benefits. However, under a simple TROP plan, the insured gets back all the money they had invested as the premium for the plan less any taxes. 

• Death Benefit

The term plan with return of premium offers a death benefit as the total sum assured to the nominee in case the insured person dies due to any eventuality. Different insurance companies offer a sum assured amount depending on the plan or mode premium payment or the type of cover opted. 

• Surrender Value

The surrender value of a TROP generally varies depending on the payment option. As a rule, the surrender value is generally more for single premium plans where the entire premium for the policy is paid at the beginning of the policy period. Insurers will have different ways of calculating the surrender value and the people who are looking at TROP plans should make sure they know what they are getting as the amount they may receive will probably not be what they assume they will receive. 

Conclusion

Most of us buy insurance plans offering guaranteed benefits and overlook term insurance plans. When buying life insurance, term plans should be given priority. If you need life insurance, you should look at buying other plans only after you have taken a term insurance plan with a sufficient sum assured.

Also read: 

Does It Make Sense for You to Buy a Joint Term Life Cover with Your Spouse?

Monthly vs Lump-sum Pay-out in Term Insurance

Disclaimer: This article is issued in the general public interest and meant for general information purposes only. Readers are advised not to rely on the contents of the article as conclusive in nature and should research further or consult an expert in this regard.