Q. There is much talk about term insurance policies that offer ₹1 crore with return of premium. Is this possible? Can there be some hidden conditions?
Let us begin by understanding what a term policy is all about. It is a type of life insurance that provides coverage for a specific period of time. The purpose is to provide financial protection to the policyholder's family or dependents in the event of the policyholder's death during the term of the policy. The death benefit, also known as the sum assured, is paid to the nominee upon the death of the policyholder.
One of the main advantages of a term plan insurance policy is that it is less expensive than other types of life insurance, such as whole life insurance. This is because term insurance plans do not have a savings component and the premiums paid for a term plan are used only for providing death coverage.
READ MORE: Is ₹1 crore term insurance sufficient for you?
Coming to the return of premium, there are several term plan policies that offer this feature. If the policyholder survives the term of the policy, they will get back all the premiums that they had paid. While this might sound attractive, it is important to know that these policies may have specific conditions that must be met for the policyholder to get the premiums back. Also, this feature may not be available on all policies.
Purely from the investment point of view, the return-of-premium feature is not very cost-effective. The premiums paid for a return of premium term (ROP) plan insurance policy is higher than the plain term plan. It is important to evaluate the return-of-premium feature in the context of your overall financial goals and risk tolerance.
READ MORE: Life Insurance: Make sure to review your premium before buying a term insurance plan
For Example: For 30 yr male, the plain term plan costs ₹11806, while ROP Term plan costs ₹21839/- for a term of 30 yrs. If the differential amount of ₹10033 is invested in mutual funds at 8% for 30 yrs, the fund value will be ₹11,36,570/-. But in ROP Term plan, the amount at maturity will be ₹655170/ - ( 21839*30). Hence not cost effective.
It is also important to understand that insurance is a long-term commitment. You must review your insurance coverage regularly to ensure that it fits your needs in the current stage of your life.
Coming to the specific policy you have mentioned (coverage of ₹1 crore and return of premium), it does sound attractive. Do carefully read the terms and conditions of the policy before you commit. If you want to be very sure that the policy aligns well with your overall financial goals and risk tolerance, consult a financial advisor who can give you expert advice.
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