Buying a term insurance policy is the easiest and the smartest way of protecting your family in case something unfortunate happens to you. You just need to pay a premium in exchange for a life cover (sum assured). If something happens to you (the policyholder), the nominee gets the full payout as mentioned in the policy. Likewise, if you live beyond the policy term period, there’s no payout.
However, many insurance companies have now introduced term plans with the ‘return of premium’ feature. “This works like a savings plus protection plan. In case of death, the nominee gets the committed sum insured amount. In case the policyholder survives the policy term, then the nominees or he/she would get the entire premium paid during the policy tenure. Hence, in this case, the insured is guaranteed to get his/her investment back in any of the scenarios, either death or survival,” says Naval Goel, founder and CEO, PolicyX.com, insurance web aggregator.
However, this comes at a small cost, for providing the additional feature in the policy. Term insurance plans are low cost as they are the simplest form of insurance and just charge for the mortality risk. The ‘return of premium’ feature dilutes the basic DNA of a term insurance plan.
Recently, ICICI Pru iProtect launched a new term insurance plan, ICICI Pru iProtect Return of Premium, according to a recent press release. In this plan, the quantum of life cover is automatically adjusted based on the customer’s life stages. It offers return of 105 per cent of all premiums paid on survival, besides providing a cover against 64 critical illnesses. Several other life insurers have term insurance products that return the premium in case the policyholder survives the term.
How Are They Different From Regular Term Plans?
The biggest difference between a regular and a ‘return of premium’ term insurance is that the former one only offers death benefit while the latter offers dual benefits- death and survival.
Also, the premium for term insurance with the return of premium feature is higher than the conventional ones, majorly due to the additional benefits. “The difference in premium of both plans is one-fifth. However, the exact difference depends on the age and the sum insured,” adds Goel.
What Are The Benefits?
The extensive coverage that term plans provide ensures your family members can maintain a decent standard of living and pay off debts, if any, even when you are no more. The return of premium feature ensures you have some money to yourself if you survive the term though this money won’t earn any returns.
Should You Buy?
Term insurance with return of premium is a new-age plan that is designed for those who don’t want to lose their money in any scenario. Such plans are beneficial if the insured wants the money for personal use, adds Goel.
Typically, you get back the amount of premiums you have paid during the policy term in a term insurance with the return of premium feature. However, remember that when you get back the money at the end of the term, which may be 10 or more years, the purchasing power of the money would have been eroded as inflation would have eaten into it. There are no returns on the premiums you get back. In that sense, it’s not really an investment.
Term plans are a must-have for all families with depandants. Remember to compare different plans before zeroing in on one. Don’t be afraid to reveal any information as that could lead to claim rejection. Do all your medical tests properly before going for one.