• Blog
  • Calculators
  • Quiz
  • Sample Financial Plan
MoneyChai
  • Blog
  • Forum
  • Android App
  • Blog
  • Calculators
  • Quiz
  • Sample Financial Plan

Best Term Plan with Return of Premium (TROP) Or Maturity Benefits

By:MoneyChai Insurance Last Updated: 3 Jun, 2019

Which is the best term plan with return of premium (TROP) ? Which is the best term plan with Maturity Benefits?

The answer to this question is ‘none’.

If you want to know the reason behind the answer, you’ve come to the right place.

term plan with maturity benefits

But before that, let us understand what a term plan is all about.

Term Plan

A term plan is a life insurance plan that provides you with a certain amount of coverage for a specified time period. If the insured dies in between the tenure of the policy, a sum assured (death benefit) is paid. On the other hand, if the insured survives the term of the policy, no benefit is paid. Ideally, a term insurance plan does not offer any maturity benefits.

In this case, insured is a person who has purchased the term plan (policyholder) whereas sum assured is the amount of coverage and tenure is the specified time period for which the insured has taken the policy.

A term plan is undoubtedly the best life insurance product available at the moment. Despite the fact, many life insurance companies have introduced a similar variant known as ‘term plan with return of premium’, i.e., TROP. The prime reason behind the launch of this variant is the psychology of Indian consumers.

Indian consumers have a knack for capital protection. They cannot afford to lose their hard-earned money no matter what happens. Life insurance companies are completely aware of this psychology; hence a variant of term plan was introduced, which is term plan with maturity benefits, to encourage consumers to buy the policy.

Term Plan with Return of Premium (TROP) 

All the features of this variant are the same as the original term plan except the fixed premium return that you will get if you survive the tenure of the policy. In simple words, this variant plan comes with maturity benefits.

If the insured dies in between the tenure of the policy, the sum assured is paid. But, if the insured survives the term of the policy, all the premiums are returned back.

Coming back to the main question of this article – that is “why you should not go for a term plan with return of premium (TROP)”? Let’s take a clear example in order to justify the answer and put things into perspective.

Ajay is 35 years old working professional who wants to purchase a term insurance plan. He has zeroed down on the sum assured of 1 Crore. Since Ajay wants to work only till the age of 60, he has decided to take a term insurance plan for a time period of 25 years.

But Ajay is confused whether he should go for a pure vanilla term plan of 1 Crore or a sum assured of 1 Crore with premium return options. Since Ajay was unsure, he decided to consult a fee-only financial planner to clarify his doubts regarding the term plans.

His financial planner asked him to do a comparison between the premiums of both the plans. After selecting 2-3 life insurance companies, Ajay compared the premium of the normal term plan and the term plan with maturity benefits.

  Term Plan
(Age -35 Years, Tenure -25 Years, Sum Assured -1 Crore)

Name of the Plan

Premium per annum in thousand

IPRU iProtect smart 15,457
HDFC Life 3D Life Plus 15,421
Tata AIA Sampoorna Raksha 12154

 

Term Plan with Return of Premium
(Age -35 Years, Tenure -25 Years, Sum Assured -1 Crore)
Name of the Plan Premium per annum in thousand
IPRU iProtect smart money back 26,087
HDFC Life Return of Premium 33,404
Tata AIA Sampoorna Raksha+ 25812

 

Upon making the comparison, Ajay realized that term plans with maturity benefits are at least 70% costlier. Moreover, he found out that in insurance companies such as HDFC life and TATA AIA, the premium is more than double the amount. Taking all the important factors into consideration, Ajay decided to go for ICICI Prudential iProtect smart money back term insurance plan.

Term Insurance with Maturity Benefits

Secondly, his financial planner asked him to calculate the loss that would be incurred if he dies before the age of 60 and what would be the gains if he survives till the age of 60?

As the duration of the term plan was 25 years, Ajay did not face any difficulty while calculating the gains, which amounted to 26087*25= Rs. 6,52,175

Ajay made a table to calculate the losses that would be incurred if he dies before age 60.

Term Plan with Return of Premium (TROP)

In both cases (Term plan and TROP), Ajay`s family will receive 1 crore as sum assured if he dies before 60. But in the second case (TROP), Ajay will incur some losses if he dies before age 60.

You can use the information from the table above to calculate the amount of loss that Ajay would incur.

This is the first major reason why you should not buy term insurance with maturity benefits. It’s so because if you happen to die before the tenure of the policy, you would have to pay a much higher premium for the same sum assured.

Now, let us consider the second case where Ajay survives till the age of 60.

As explained above, Ajay will receive an amount of Rs. 6,52,175 at the end of his tenure.

To receive this amount, Ajay will have to pay an additional premium of 10,630 on an annual basis. Nevertheless, if Ajay invests the same amount of money in mutual funds for the next 25 years, he will receive an amount of 10.5 Lakhs upon completion of his tenure, expecting returns of 10%. On this account, Ajay will receive 4 Lakhs extra. Besides that, even if we assume the returns to be 8%, Ajay will still receive 7.8 Lakhs.

Now, if we assume returns of 12%, Ajay would receive an amount of 14 Lakhs at the end of his specified tenure.

In both cases mentioned above (Death and Survival), Ajay would be at a great loss if he opts for a term plan with return of premium instead of a pure vanilla term plan.

Keeping all that aside, it’s also important to remember that all insurance companies don’t pay the entire amount of premium after maturity. Some companies deduct the initial premium while others may offer only 75% of the total premium paid.

The only visible advantage in returns of premium plan is that your cover gets reduced once you stop paying premium. For example, if you have taken a sum assured of 1 crore and paid premium only for a time period of 5 years, your cover will reduce to 1/5th of the total amount if the tenure of the policy is 25 years, i.e., your cover would be 20 Lakhs if you stop paying premium after 5 years. Unlike pure term plans, the cover is not completely lost in case of TROP.

Conclusion

Irrespective of popular opinions, Term plan with return of premium or maturity benefit is nothing but an inescapable trap. Therefore, make sure that you don’t fall for it as you are going to lose both ways.

14 Shares
Share14
Tweet
Share
WhatsApp

Filed Under: Insurance

MoneyChai

Hi, I am Ajay Pruthi, an alumnus of NIT Jalandhar and K.J. Somaiya Institute of Management Studies. I have over 10 years of experience in the field of insurance and have worked with top two private insurance players in the country. I am a Certified Financial Planner and currently working as a Paraplanner with Mr. Melvin Joseph, founder of Finvin Financial Planners. If you liked my blog and want to discuss further on comprehensive fee only financial planning, feel free to get in touch by visiting Finvin Financial Planners.

You May Also Like

  • Is It Wise to Mix Insurance and Investment – Never

    Is It Wise to Mix Insurance and Investment – Never

  • ICICI Pru Guaranteed Income for Tomorrow Review – 4%-5%Returns

    ICICI Pru Guaranteed Income for Tomorrow Review – 4%-5%Returns

  • LIC Bima Jyoti Review, Returns and Tax – New LIC Plan 860 Details

    LIC Bima Jyoti Review, Returns and Tax – New LIC Plan 860 Details

  • LIC Jeevan Labh Review – Why Every Blogger Ended Up Calculating Wrong Returns?

    LIC Jeevan Labh Review – Why Every Blogger Ended Up Calculating Wrong Returns?

Reader Interactions

Leave a Reply Cancel reply

Your email address will not be published. Required fields are marked *

Primary Sidebar

  • Retirement
  • Retirement
  • PF Accumulation at Retirement
  • NPER
  • Child`s Goals
  • Higher Education
  • Marriage
  • Investments
  • HRA
  • PPF Accumulation
  • PMVVY
  • SIP
  • Lumpsum Investment
  • Fixed Deposit
  • Recurring Deposit
  • Present Value of Money
  • Future Value of Money
  • Increasing SIP calculator
  • Compound Annual Growth Rate
  • Monthly SIP Required for Any Goal
  • SCSS
  • Term Insurance
  • Life Insurance Need

Newsletter

Popular posts

  • House Rent Allowance Rules and Regulations – HRA 2020-21

  • Gratuity Formula – Rules, Limit, Eligibility & Calculation 2020

  • Gift Tax Rate in India – Limits, Exemptions and Rules 2020-21

  • NRI PPF Rules – Account and Notification 2019

  • GST Rate on Real Estate – Under Construction & Completed Property

  • Should I Surrender My Jeevan Anand Policy from LIC?

  • Cost Inflation Index Calculation for FY 2020-21 & AY 2021-22

  • Early Retirement in India -How to Retire Early like Suresh ?

  • Bank Locker Rules and Regulations – Charges & RBI Guidelines

  • Financial Advisor Fees Structure, Cost & Charges in India

Recent Posts

  • Is It Wise to Mix Insurance and Investment – Never

  • Types of Risk in Debt Mutual Funds –Interest Rate, Credit and Liquidity

  • Tax on PF Interest – New PF Rules 2021 with Example

  • Calculating Returns And Lazy You

  • Deductions under Section 80C for FY 2020-21 – Tax Benefits

  • ICICI Pru Guaranteed Income for Tomorrow Review – 4%-5%Returns

  • Deduction under Section 80D – Tax Benefits for 2020-21

  • LIC Bima Jyoti Review, Returns and Tax – New LIC Plan 860 Details

  • Should You Purchase Capital Gain Bonds from NHAI & REC to Save Tax?

  • Chemist Vs Biased Doctor Vs Unbiased Doctor

Footer

About Us

Hi,
I am Ajay Pruthi, an alumnus of NIT Jalandhar and K.J. Somaiya Institute of Management Studies. I have over 10 years of experience in the field of insurance and have worked with top two private insurance players in the country.

I am a Certified Financial Planner and currently working as a Paraplanner with Mr. Melvin Joseph, founder of Finvin Financial Planners.

If you liked my blog and want to discuss further on comprehensive fee only financial planning, feel free to get in touch by visiting Finvin Financial Planners.

 

Newsletter

Help Links

  • Contact Us
  • Write for moneychai
  • Sitemap
  • Disclaimer
  • Advertise
  • Archive

Categories

  • Banking
  • Financial Planning
  • Insurance
  • Investment
  • Mutual Funds
  • Retirement
  • Tax
  • Chai Pe Charcha
  • Blog
  • Forum
  • Android App
Copyright ©2017 MoneyChai. Designed by Mount Moriah Infotechs