TomorrowMakers ™

Have you heard about Term Plans that payback?

17 June 2015
These are the new-age term plans that, along with the usual benefits of a term plan, return all the premiums in case the policyholder survives the policy term.
 
 

Term plans are popular because they are cost-effective, easy to understand and easy to avail online. They can offer higher life cover (compared to endowment plans and  ULIPs) at a fraction of the cost and the beneficiary gets a death benefit in case the policyholder does not survive the term (duration of the policy). Simple enough!

However, what happens if the policyholder survives the term? In such a scenario, the term plan does not give any maturity benefits. The premiums paid toward the cover are gone. In hindsight, the premium payments might look like money wasted.

This is why some companies offer a return-of-premium term plan. Let’s -learn more…

What is Return-of-Premium Term Plan?

These are the new-age term plans that, along with the usual benefits of a term plan, return all the premiums in case the policyholder survives the policy term. Yes! All the premiums paid toward the life cover are returned (–excluding tax).

However, it is important to note that return-of-premium plans tend to have higher premiums as compared to the traditional term plans for the same sum assured and policy term.

Features of Return-of-premium Term Plans

  • High sum assured
  • Premium returned in its entirety (excluding tax) after policy term
  • Premiums need to be paid throughout the term of the policy

The Math

As discussed, return-of-premium term plans have a higher premium compared to traditional term plans for the same sum assured and policy term. This means shelling out a bigger amount toward life insurance every year. However, the premium that is spent toward the cover is returned to you by the end of the policy (excluding tax). Consider the following scenario.

Policyholder details at the time of purchase:

Age: 30

Policy Term: 20 years

Sum Assured: Rs 75 lakhs

Illustrative plan working if policyholder survives the policy term:

Policy Type

AnnualPremium (indicative)

Total Premium Paid

Returns After 20 Years

Regular term plan

Rs 5,000

Rs 1,00,000

0

Return-of-premium term plan

Rs 15,000

Rs 3,00,000

Rs 3,00,000


As illustrated, the regular term plan does not have maturity benefits, i.e. no returns. However, a return-of-premium term plan pays back the all the premiums.

No more reasons to shy-away from term plans, are there?

Check how much Life Insurance cover you need with our Life Insurance tool.

 

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