Mumbai (Maharashtra) [India], December 18: When you're thinking about a secured financial future for your kids, remember that the most powerful weapon in your financial planning toolkit is insurance. Out of the sea of insurance policies, the two most popular choices often create a problem for the buyer the term insurance and the return of premium plans. Naturally, a person's choice would depend on his cognition of these plans and the way it will best fit his or her economic objectives and daily life. This blog will give you an overview of the term insurance vs return of premium plans to help you decide what could be more suitable for you.
What is Term Insurance?
Term insurance is the cheapest and simplest form of life insurance. It provides pure risk coverage and ensures that, in the event of a policyholder's untimely death during the policy term, there is a financial pay-out to the nominee. However, in case the policyholder survives the term, no maturity benefit is payable.
Key Features of Term Insurance:
• Low Premiums: Term insurance is way cheaper than any other life insurance plan. It is, therefore, easy to afford for people regardless of their income.
• Provides high coverage: You can take up a high coverage, such as 2 crore term insurance, at a pretty low premium.
• Flexibility: Rider would be offered, such as accidental death benefit or a term insurance with critical illness rider, increasing the coverage.
What is a Return of Premium Plan?
ROP plans are a combination of term insurance and savings features. Though they offer life cover like term insurance, they refund the paid premiums if the policyholder survives the term. Thus, ROP plans appeal to people who are wary of losing money in case they outlive the policy term.
Key Features of Return of Premium Plans:
• Maturity Benefit: ROP plans pay the total premiums paid in case no claim is received at the end of the policy term with pure term insurance.
• More expensive: Premiums for ROP plans are relatively expensive as compared to traditional term insurance because of the added feature of maturity payout.
• Life Coverage: ROP plans, like term insurance, offer a death benefit during the term of the policy.
Term Insurance Vs Return of Premium: A Detailed Comparison
1. Cost of Premiums:
• Term insurance plans are much cheaper compared to ROP plans. A healthy 30-year-old individual would pay a fraction of the cost for a 2 crore term insurance compared to an ROP plan that would give him the same cover.
• ROP plans, although expensive, provide financial security in that it provides maturity benefits.
2. Purpose of Coverage:
• If you wish to get maximum financial protection to your family at a reasonable price, term insurance is the best one.
• However, if you want to have a mix of both insurance and savings, then a ROP plan will interest you.
3. Maturity Benefits:
• There are no maturity benefits with term insurance. It is a pure protection plan.
• In contrast, ROP plans refund the paid premiums at the end of the policy term.
4. Flexibility with Riders:
• Term insurance comes with several riders, for instance a term insurance with critical illness rider, which can be bought in addition to increasing the cover.
• ROP plans are fewer in number and thus there might not be too many riders to choose from.
5. Investment Perspective:
• The pure term insurance product just emphasizes risk coverage and has nothing to do with investment.
• As a hybrid, the plans provide partial investment by reimbursing the paid amount in the form of returning premiums.
6. Tax Benefits:
• Both plans have the potential to save taxes, hence, under Section 80C and Section 10(10D) of the Income Tax Act, one would earn savings on the premium amount.
Who Should Choose Term Insurance?
Term insurance is apt for those people who have given utmost importance to high coverage at minimal cost. It suits for:
• Young earners beginning their financial journey.
• Those who have large financial liabilities, such as mortgages or education loans.
• Families need a lot of economic security in case the breadwinner dies an untimely death.
If you want to get maximum coverage within a meager budget, then policies like 2 crore term insurance provide the best return.
Who Should Opt for Return of Premium Plans?
ROP plans are suitable for those who want the peace of mind of getting their money back if they outlive the policy term. These plans are appropriate for:
• Risk-averse individuals seeking a blend of protection and savings.
• Those with a steady income can therefore afford higher premiums.
• Those in pursuit of financial security coupled with life coverage.
Factors to Consider Before Choosing
1. Budget: If one has less amount of money, the best option is term insurance.
2. Financial Goals: Decide if you need pure risk coverage or a combination of insurance savings.
3. Riders and Add-Ons: Term insurance plans also have a host of riders, such as term insurance with critical illness rider, which help tailor your coverage.
4. Policy Tenure: Consider how long the policy would last in line with your financial obligations and dependents' needs.
5. Payout Needs: Whether your primary motivation is securing a death benefit for your family or just receiving a payout on survival..
Conclusion
It will be a choice from term insurance vs return of premium depending on the urgency of your financial needs and how much risk you want to undertake. The plan is great if you have the requirement for the most amount of coverage at a minimal cost. In addition, if saving money is important to you then the ROP plan suits the best. Make an informed decision by carefully analyzing your financial situation and future goals.
Whether you opt for the pure protection plan, such as 2 crore term insurance, or a hybrid ROP, make sure that what you decide will protect the ones you love and stay within your long-term plans. The bottom line: balancing affordability, coverage, and financial security.
(Disclaimer: The above press release comes to you under an arrangement with PNN and PTI takes no editorial responsibility for the same.). PTI PWR
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