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Tata Capital > Blog > Return of Premium Life Insurance Explained

Wealth Services

Return of Premium Life Insurance Explained

Return of Premium Life Insurance Explained

Choosing the right life insurance can be overwhelming, with various options available in the market. One such option is Return of Premium (ROP) life insurance which promises to return the premiums paid if you outlive the policy term. This combination of risk cover and savings can seem attractive.

But is it the best choice for you? In this article, we will delve into the features, benefits, and limitations of ROP life insurance to help you determine if it aligns with your financial goals and provides the protection you need for peace of mind.

What is the Return of a Premium Life Insurance Policy?

An ROP life insurance policy is one in which the individual receives a refund of the premiums if they outlive the selected policy term. Let’s understand this with an example.

Suppose Mohit, a healthy 32-year-old, chooses a term plan with a sum assured of Rs. 50 lakhs, paying an annual premium of Rs. 12,718 for 40 years. If Mohit passes away during this period, his nominee will receive Rs. 50 lakhs. But if he survives the term, Mohit will get back all the premiums paid, totaling Rs. 5,08,720 (Rs. 12,718 x 40 years).

This makes ROP policies a good option for those wanting both insurance coverage and a guaranteed return.

What is the Difference Between ROP and Term Life Insurance Policies?

Here are the key differences between a ROP and a term life insurance policy.

Term PolicyROP Policy
In a term policy, the benefit is only paid if the individual passes away during the term.An ROP policy pays the benefit if the individual passes away during the term. However, if the individual outlives the term, they receive a refund of their premiums.
Premium amounts are generally lower.Premium amounts can be more expensive.
If the policyholder stops paying premiums, no paid-up value can be acquired.The paid-up value can be acquired even if premium payments stop. This means the individual can still receive the plan’s benefits if they have paid at least the last two years amounts. However, the benefits will be reduced.

Pros and Cons of ROP Life Insurance Policy

Before deciding if a return-of-premium (ROP) life insurance policy is right for you, it is essential to consider the possible advantages and disadvantages.

Pros of ROP

  • Reduced risk

For many, paying for a life insurance policy that may never be needed can seem like a waste of financial resources—if the individual outlives the term, they receive no payout, benefits, or return of their premium payments. However, with ROP life insurance policies, individuals receive a refund of the premium amounts they have paid if they outlive the term or a surrender value if they wish to opt out of the policy.

  • Tax benefits

Return of premium insurance policies are eligible for tax benefits. They are covered under the Income Tax Act of 1961, Section 80C and 10(10D). In case of the policyholder’s demise, the nominees will be exempt from taxation on the insurance amount received.

  • Flexible policy tenures

While regular term policies have a maturity age (an average of 70 years), ROP insurance policies offer more flexible term plans. Depending on the individual’s needs, these could range from five to thirty years.

Cons of ROP

  • High premium rates

Return of premium insurance policy plans have higher premiums than their traditional counterparts.

  • No interest added

When the policy’s term lapses, the policyholder may claim the return benefits. However, no interest is added to this amount. Considering inflation, the individual may end up getting less than what they paid.

The Bottom Line

The right health insurance policy can be a crucial safety net during medical emergencies. To secure your financial future, consider the insurance services offered by Tata Capital Wealth. By choosing a comprehensive insurance plan, you can protect yourself against unforeseen medical expenses and ensure coverage for various health conditions with flexible premium payment options.

Visit the Tata Capital Wealth website today!

Build Your Wealth with Expert Guidance from Tata Capital!

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