While deciding which term plan to pick, it is necessary to understand your future needs. You need to understand what your family members may require the money for in the future and the main aim behind getting the term plan. Most banks offer a wide array of term policy insurance plans that have different rules and regulations attached to them. These rules and regulations should be the deciding factor regarding whether the policy is perfect for you or not.
The main aim of any term insurance plan is to secure your family’s future. Families that depend on a sole breadwinner need a security plan that can ensure comfort and financial security in the future in case of the demise of the breadwinner of the family. Though, with the usual term insurance plans, the rule that the policyholder will get zero in return if they outlive the policy makes it risky.
What is the term plan with return of premium?
Return of the premium is a term policy that provides a death benefit to the insured. Most term policies have the norm included that the policyholder has no right to claim the returns if he or she is still living once the term of the insurance plan has matured.
People who are dissatisfied with this rule of the term plan should look for a term plan with a return of premium. This variation of the term plan ensures the return of premium even if the policyholder outlives the term.
Features of term policies with return of premium
Listed below are the essential features of the term plan with return of premium that can make it more beneficial in comparison to the usual term plan.
- Maturity age
When you sign up for a normal term policy, you will notice that most banks and insurance providers offer a maturity age of 70 years or around it. In such cases, the policyholder cannot get any time to utilize the money that they saved up over the years. In case of return of premium term plan, you can choose to sign up for a 5 to 30 years long term or any other duration of their choice as the returns are guaranteed even if the policyholder is living upon maturity.
- Payment options
Most banks offer a plethora of payment options under term plan with return of premium. Based on your needs and situation, you can choose a suitable payment option. These options include monthly, quarterly, half-yearly, and yearly payments. The insured can also choose to pay a lump-sum amount for the term plan.
- Death benefit
The term insurance plans with return of premium also ensure a significant amount signed under death benefit. This is provided along with the returns in case the policyholder dies before the maturity age of the term plan.
- Survival benefit
This is the feature that makes term plans with a return of premium different from all other term plans. Even if the insured survives after the maturity of the plan, they can claim the complete returns of the insurance payments that have been paid by them over the years.
- Surrender value
The surrender value is applicable when the person insured under the policy chooses to surrender the plan mid-way its term. The best benefit you can get in such cases is if you choose to pay the premium of the plan in lump-sum. If you pay a premium at regular intervals, then the surrender value will be equal to the total of the premiums paid by you up to the time of surrender.
- Rider benefit
You can choose to add on various riders along with the original term insurance plan with a return of premium for better security. These riders range from critical illness riders, accidental death riders, etc.
Now that you have understood the various features of the term plan with return of premium, you must have received an idea regarding how it carries more benefits than usual term plans.
Pros of term plan with return of benefits
For the ease of your understanding, listed below are the advantages of a term plan with a return of premium that may fulfill your needs and address the future wants of your family members. These reasons should convince you to invest in a return premium plan.
- Total refund
Term insurance plans are always considered risky because one can never be sure if they will survive the tenure. In case they do, they will fail to get any refund. With the return of premium policies, you make sure that you will at least receive the money that you paid through several premiums during the tenure of the term plan. It thus becomes the best term plan that ensures security in both ways.
- Additional security coverage
As the return of premium policies guarantee that the policyholder will get complete returns at the end of the plan, one can enhance the security by including additional riders to the term policy. These riders can enhance the coverage of the term plan and provide ensured security.
- Paid-up option
Most term plans with a return of premiums ensure that those candidates who do not have a fixed source of income do not become defaulters if they fail to pay the premium during the tenure. The option makes the return of premium a safer choice for such people.
- Various premium payment options
This term policy is equipped with various payment options to suit the needs of the policyholder. Those starting their career and saving up for their immediate needs can choose to pay the premiums monthly.
People who have irregular income and are paid in lump-sum can choose to pay the premium in lump-sum as well. Such varied options ensure that the policy addresses the needs of all kinds of people with different sources of income.
- Tax benefits
Term plan with return of premium is covered under Section 80C and 10(10D) of Income Tax Act, 1961. According to the section, the term plan is viable for tax benefits. Hence, the premium paid and the returns drawn are tax-free. The Act allows the deduction of around 1.5 lakhs. Thus, the policyholders can choose the number of their premiums to get tax liabilities accordingly.
- Additional benefits
Such term insurance plans with assured return of premium also provide additional benefits to female policyholders. Furthermore, people who do not smoke and follow a healthier lifestyle are also eligible for various additional benefits. These may vary from one insurance provider to another.
- Varying term durations
The policyholder can choose the duration for their term plan with return of premiums. They can choose any maturity age from 5 years to 30 years. The feature makes it a good choice for those who want to save up for immediate needs such as educational expenses of their children, marriage, vacation, etc.
Cons of term plan with return of premium
Along with the benefits that are provided under the return of premium, some disadvantages may not suit some policyholders. One can look for other term insurance plans that can overcome these disadvantages as well.
Most returns of premium plans require a higher premium payment. As opposed to around Rs. 12000 that you may for a usual term plan as a yearly premium, the return of premium plans requires a premium payment of Rs. 20,000 or more.
- No interest
Once the policy matures and the policyholder claims the return benefits that they must get under the plan, they will find that there is no interest added to the benefits. Thus, even if you decide to sign up for a term plan for around 20 to 30 years, you will get no interest or added benefits.
- Survival until the end of term plan
The policyholder must survive the policy term. If they face demise while the term is ongoing, then upon maturity of the plan, the family members of the policyholder will be eligible only for the death benefits. They will not get the returns for the premiums paid.
- Not an investment
The policy should not be considered as an investment plan. Rather, it works as a savings plan as there are no additional benefits, profits, or interests that one may get after the maturity of the term plan.
The term plan with return of premium may be the perfect choice for some, while for others, it may fail to provide the terms and conditions that they need. Thus, the final decision lies with the varied needs and requirements of different people.
If you need a short or long-term savings plan, then such a policy is the perfect choice for you as it assures returns. Though, if you are looking for a plan that helps you make an investment, then the plan will fail to match your requirements.
One should consider their present financial situation and future needs while making the selection for the term plan that suits them the best. You can also choose various riders that are available under the term plan with a return of premium of added coverage.