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During all the options available, term insurance with a return of premium acts as a great asset to cover your loved ones with a benefit that will refund the premiums paid at the end of the term. Life insurance is very important when it comes to the financial decisions of a person in India. This is an extremely viable option for people looking at both financial security and ensuring the money coming back should they survive the policy period.
What is Term Insurance with Return of Premium?
Let’s understand first, what is term insurance with return of premium before jumping to wits stretches. As the name suggests, term insurance is a life cover policy providing financial protection in a stated term for the policyholder. The death benefit will be paid to the nominees in case the policyholder dies before the expiry of the term. Basically, it is a variation of a traditional term policy, but it asks for the return of premiums paid.
This added feature of returning premiums makes it attractive for many due to the provision for life cover and financial protection, along with additional value in the form of a refund of premiums. However, it being a financial product, proper utilization and its benefits need to be known.
- Needs assessment of proper coverage
Assesses your true needs for term insurance with a return of premium. Know the real obligation and need now and in the future for yourself and those who depend on you to determine more practical and reasonable needs. Apply a term insurance calculator to get your best coverage.
Some of the factors to be considered in arriving at the sum insured include outstanding loans, future educational expenses for children, and retirement planning. A term insurance calculator will help you determine how much you need most realistically.
- Understand the Cost of Return of Premium
Though the return of premium feature is exciting, premiums are, on average higher than those quoted for regular term insurance policies. It is, of course quite simple: the additional risk that falls on the part of the insurer is to return the sums paid in by the policyholder for survival through a term.
If protection alone is what counts, term insurance might end up cheaper for you. On the other hand, if you prefer to be able to take your money back after some time, TROP could be a better choice.
- Choice of Term Period
Another factor that can help maximize the benefits is the term duration of your term insurance policy. The general rule is that the longer the duration, the more the premium will be. On the other hand, the longer the term duration, the more extended the period of coverage would be, potentially until your retirement or until your dependents are financially independent.
While choosing the term, you would be concerned with your age, health status, and other family issues. You may have the option to decide on the tenure of the policy that would ensure financial support from such unknown mishaps in the future but would ensure that all premium payments continue to be economically viable during this period.
- Tax Advantages: Important Benefit
Some benefits from taxes – You can exhaust this to your limits, and it may help increase your returns from your term life insurance with TROP. Sections 80C of the Income Tax Act allow a relief in terms of premiums to be paid out for your life policies including TROPs up to an amount of ₹1.5 lakh of premium paid in the fiscal year of assessment.
Moreover, the death benefit received by the nominee is exempted from taxation under Section 10(10D). If the worst were to happen in the course of the policy term, the money received by your family members would not be subjected to taxes.
- Regularly Review Your Policy
Among other essential factors that bring in the maximum benefits from any insurance, especially term insurance with return of premium, is the periodic review. As life is always dynamic, so are circumstances; therefore, this will ensure that it can still align with your changing needs.
For instance, if the monetary position improves, you would like to increase the sum assured. Similarly, if the liabilities decrease for you, you may wish to decrease the sum assured and this can benefit you in reducing your premiums too.
- Riders for Additional Coverage
Although term insurance with a return of premium offers only basic coverage, the value of such a policy can be increased by attaching riders to the policy. Riders are additional benefits attached to your term insurance for a relatively small additional premium. Some popular ones include:
Critical illness rider: Provides coverage in case a critical illness is diagnosed, which may be cancer, heart attack, or stroke.
Accidental death and disability rider: Provides additional financial protection in case of accidental death or disability.
Riders fill coverage gaps and add overall benefits to your term insurance with the return of premium, so you’re covered for a wide range of eventualities.
- Take Full Advantage of the Refund Option
One of the most attractive features of term insurance with a return of premium is that your premium gets refunded if you outlive the term. Still, it’s always important to understand how this return works. So, in return of premium term insurance, the total amount of premiums paid throughout the term is returned back, but that does not mean that the premium would be fully refunded by the insurer if some other charges had been levied like administrative cost charges.
Moreover, though getting your premium back relieves you, yet the amount one gets back in return is that of his very own money to which he was paying over the years.
- Plan Your Finance Wisely
Lastly, financial plans should be well-planned to get the most benefits from term insurance with a return on premium. The added premiums you are paying for TROP must form part of a financial scheme. Think about where your premiums fit within the budget and whether you will be able to pay such premiums without stretching your finances.
If you have diversified investments in various insurance products then think how any of those support each other so that your policy TROP falls into place suitably with any other investment like mutual funds PPF or Stock.
Conclusion
Maximizing term insurance that would return the premium invested in India would involve considering much more than a single factor. There are a variety of ways you can ensure that you make the most of the benefits that this type of insurance will give you, including choosing the right coverage and term, the addition of riders, and how you can take advantage of tax benefits. Regular review of your policy, setting it according to your financial goals, and using term insurance calculators will enable you to make an intelligent and well-informed choice that offers you not only the financial security you need but also peace of mind for the future.
