With one significant exception, the term plan with return of premium (ROP) policies is similar to standard term insurance policies in that they reimburse you for your premiums when the policy matures. Throughout the policy’s term, you pay yearly premiums, and if you live longer than you anticipated, the policy will return 100% of your premium payments to you as a “survival bonus,” which is tax-free.
Term plan with a return of premium effectively lowers the cost of your coverage to almost nothing while providing you with more substantial financial advantages. In addition, the policy pays your beneficiaries the death benefit, which is a predetermined amount for which you pay the premiums if you pass away during the term.
Here Are Some Advantages of the Term Plan with A Return Of Premium
Refunding All Premiums In Full:
The insurance will reimburse all premiums paid as a survival or maturity benefit if you outlast a term plan with a return of premium. This sum can be used to cover any significant financial need.
Creates A Savings Corpus:
If you live past the term, the maturity benefit functions as a retirement corpus that can be invested again to cover future expenses.
Financial Security Is Ensured:
If the policyholder dies before the policy matures, the beneficiaries receive the total amount of the assurance, and the policy is cancelled.
Misfortunes are a part of life. The policyholder may receive a terminal illness diagnosis at any time throughout the period. In these situations, a Term plan with return of premium plans (with terminal illness feature) treats the policy as having reached the end of its term. It pays the whole sum to the family at the time of the diagnosis to meet their financial needs. If all premiums that were due have been paid in full and none have been missed, the entire sum promised will be paid.
Makes Your Investment Balanced:
The benefits of ROP make it more expensive than a standard term plan, which raises the cost of your premium. However, the policyholder has the option of receiving a return of either 50% or 100% of the entire premiums in order to balance the costs.
Refund Even After Policy Termination:
Typical term insurance contracts come to an end when the policyholder no longer makes premium payments, and the payout is cancelled. The ROP option, however, allows you to stop paying premiums if you so want. In addition, if you surrender the insurance, all premiums paid up until that point will be reversed with previously mentioned deductions (surrender charges).
If a term insurance policy’s premium payments are stopped, the coverage expires, and the beneficiaries are no longer entitled to the death benefit in the event of the policyholder’s passing, as opposed to RoP, which remains in force even if the policyholder suddenly forgets to pay their premiums. The payouts could be impacted, though, and the death benefit or maturity benefit could be reduced as a result.
Section 80C of the Income Tax Act of 1961 allows for tax deductions of up to Rs 1.5 lakh per year on policy premium payments. In accordance with Section 10 (10D) of the tax code, the payment is not subject to income tax.
ROP has a GST of 4.5% in the first year and 2.25% in the following years, compared to an 18% GST for term plans.