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Term insurance plans are often overlooked in favor of endowment plans or other complex life covers. However, given that they’re pure protection plans with the primary objective of offering you a sizable life cover at incredibly affordable rates, term insurance policies are one of the best investment options available for beginners as well as for seasoned investors. In the conventional model, term life insurance plans only offer death benefits. You pay a premium that entirely goes towards contributing to your life cover, and in case you pass away before the plan matures, your beneficiaries receive the death benefits as specified by the plan.
Over time, however, term insurance policies have evolved to include a variety of other enhanced coverage options. Some of these include accidental death benefits, wherein your beneficiaries receive an additional payout in case you die in an accident, and accidental disability cover, wherein the insurer pays you a lump sum amount in case you suffer from permanent disabilities due to an accident. There are also other options like critical illness covers, where the insurance company pays out a lump sum amount or periodic payments if you’re diagnosed with a critical illness.
Among these additional benefits offered by contemporary term insurance policies is the return of premium feature. You can make the choice to subscribe to a term plan with the return of premium option at the time purchase.
Canara HSBC Oriental Bank of Commerce Life insurance offers online Term insurance plans which helps to secure your family financially in your absence.
Before you discover why this feature is beneficial, it’s important to first get to the basics and address what the return of premium option essentially is. A term plan with the return of premium option is a life insurance policy that comes with the added advantage of having your premium returned to you after the policy has matured.
This is different from a regular term plan, where the premium you pay is not refunded by the insurer once the policy has matured. In a conventional term insurance policy, you pay the premium due throughout the course of the plan. In case your demise occurs before the plan’s maturity date, the insurer pays out death benefits to your nominees. However, if you survive the policy’s maturity date, you do not generally receive any payouts.
Here’s where a term plan with the return of premium works differently. In this scheme, once your policy has attained the maturity date, the insurer pays you a lump sum that is equivalent to the premiums you have paid during the course of the plan. This way, you receive all your outlays back, so your net cost becomes zero.
An example of a term plan with the return of premium option
To give you greater clarity about this kind of a term insurance policy, here’s an example. Let’s take the case of a policyholder aged 25, who buys a term plan with the return of premium option. Here’s what the terms and conditions of this plan include.
Scenario 1: The policyholder dies before the 20 years are complete
Here, the beneficiaries of the policyholder will receive the sum assured of ₹1 crore.
Scenario 2: The policyholder is alive after 20 years are complete
Here, the insurer pays the policyholder the total amount of premium received, which is ₹6,00,000 (₹30,000 payable for 20 years)
Canara HSBC Oriental Bank of Commerce Life Insurance offers iSelect Star Term Plan that comes with a Plan option - Return of Premium. One of the best-selling features of a term insurance policy, term plan with ROP may be just what you need to ensure that the future of your family members is secure and you have your financial needs covered. Life is often unpredictable, and in the unfortunate event that something untoward happens to you, the surviving members of your family may find it tough to get through in your absence. This is particularly true if you are the sole breadwinner or the primary earning member in your family.
The loss of a key source of income can leave your loved ones financially unprepared to meet their everyday expenses. With Canara HSBC Oriental Bank of Commerce Life Insurance iSelect Star Term Plan, you can help your spouse, children, or dependent parents get through tough times like these without much trouble. This term plan from Canara HSBC Oriental Bank of Commerce is one of our best term plans and offers some very attractive features. Here's a quick look at the best of these.
You need a term cover large enough to take care of everything for your family in your absence. Usually, such a cover is 10 to 15 times your annual income. So, if you are earning Rs. 10 lakhs a year you need a term insurance cover of Rs. 1 to 1.5 crores. You can have such a cover under term insurance with a return of premium plan at affordable cost.
A term plan with a return of premium option is the same as a standard term plan. Return of premium is an additional feature which encourages people to opt for this cover. Features such as regular income pay out, monthly mode of premium payment, and additional riders like accidental cover and child support benefit are still available in a term plan with return of premium option.
As there is no investment component in a term plan, you do not get any returns on the money invested. At best, it gives peace of mind that the Sum Assured will take of your families’ expenses when you are not around. However, with the return of premium options, you can look forward to getting the premiums back and investing them into retirement funds if you outlive the policy term.
Needs and aspirations keep evolving as one progress through the journey of life. Getting married, buying a new house, having children, paying for their education etc will make one want additional life protection to ensure smooth continuity of life for near and dear ones. iSelect Star term plan allows increasing the Sum Assured to match the life stages. You can secure your life at each of the milestones.
Amount paid towards the premium is deductible under Section 80C. Whereas, the amount drawn either as Sum Assured or as Return of Premiums, at the end of the policy period, is exempt from tax under Section 10(10D). Tax benefit under Section 10(10D) is applicable for a term plan if the premium is less than 10% of the sum assured or the sum assured is at least 10 times the premium.
Term insurance plans with the return of premium option are particularly beneficial for people who wish to combine the affordability of a term plan with the maturity payouts of a regular life plan. Here’s how the return of premium feature can be beneficial to you.
When you invest in a term plan with the return of premium option, you’re setting yourself up to receive all your expenses back at the end of the policy duration. In other words, your outlays, although not redeemed with additional benefits, are nevertheless returned to you. This is financially better than a regular term plan, where the premium you pay remains with the insurer in case you survive the duration of the policy. Consequently, you receive no payouts if you outlive your term plan.
The return of premium feature can be beneficial to you irrespective of the stage or phase of life you are in. Here’s how.
In order to enjoy the benefits of the return of premium feature, there are some requirements that need to be fulfilled. Here’s a quick look at these points.
Survival till maturity
If you are the policyholder, you need to have outlived your term insurance plan in order to receive your premium payments back. In other words, you should have survived past the policy’s maturity date. In case of your untimely death during the duration of the life cover, your family receives death benefits from the insurer, and the concept of return of premium does not come into operation.
Active life cover
The life cover offered by your term insurance plan must remain active if you wish to claim the premium paid as a refund at the end of the policy’s term. If your policy has lapsed due to reasons like non-payment of premium, then it effectively means that your life cover is no longer in place. Because this violates the essential requirement that your life cover should be active, you will not receive your premiums if your policy has lapsed.
Policies that come with the advantage of return of premium also offer a variety of other defining features. Discussed here are some of the top features of a term plan with the return of premium option.
The frequency and schedule of premium payments vary greatly from one plan to another, and also differs significantly from one insurer to the next. Generally speaking, there are 3 types of premium payment options, as listed here.
As a general observation, term plans are more affordable than other life insurance plans. This is because they are purely protective covers wherein the entire premium you pay is utilized towards building the death benefits. A regular life insurance plan, on the other hand, tends to have an investment component as well, making it more expensive.
If you opt for a term insurance plan with the added advantage of the return of premium feature, you will still continue to enjoy the advantage of affordable premiums, because the plan is a purely protective life cover. However, since you’re receiving the additional benefit of return of premiums paid, the premium charged for these plans tend to be higher than term plans that don’t offer this feature.
A regular term plan is a pure protective cover that only focuses on offering your surviving beneficiaries a death benefit. What this means is that the premium you pay goes entirely towards contributing to the life cover. There is no element of investment involved. So, if you pass away before the policy reaches the maturity date, your nominees receive the death benefits under the plan. On the other hand, if you outlive the policy, you do not receive any money. The premiums you paid during the policy’s duration become expenses that you cannot redeem.
On the other hand, when you opt for a term plan with the return of premium option, the insurer returns the total premium paid by you when the plan reaches maturity, provided you outlive the policy.
Understanding how life insurance policies with the return of premium feature work will give you a better idea of how they can benefit you. So, here’s a clearer look at how these policies work.
Generally speaking, the premiums paid to purchase and remain invested in a term insurance policy are not refundable. In case you pass away before the policy’s duration is complete, your beneficiaries receive death benefits as a payout from the insurer. However, if you outlive the policy, you will not receive any financial compensation, since there’s no investment involved in term insurance plans.
However, if you invest in a term plan with the return of premium option, you get your premium payments back at the end of the policy term, provided you survive the period. In this case alone, the premiums paid for term life insurance are refundable.