Term Insurance with Return of Premium - Decoded

An important point to be kept in consideration in case of term insurance plans is that if the policyholder passes away within the term of the policy, only then the death benefit is payable. In case the policyholder manages to surpass the policy period also known as the term then there is no maturity benefit available with them.

Keeping the requirements of users and insureds, insurance providers designed and developed a different form of term insurance known as term insurance with return of premium. In the case of these plans, the premium paid by the policyholder is returned periodically to them, and therefore even after the policy period is over, the initial capital remains with the policyholder.

In this thread, we will discuss term insurance plans with the return of premium and its benefits. Furthermore, we will shed light on some important points to ponder when purchasing term insurance plans with a return of premium. Before we go ahead and dive deep into the nuances, let us take a quick look at what exactly are term insurance plans with return of premiums.

Term Insurance Plan with Return of Premium (TROP)

In case of a simple term insurance policy, a premium is paid against which the insurer offers coverage to the policyholder. The death benefit will only be paid to the nominees of the policy if the demise of the policyholder occurs within the term of the plan. However, if the policyholder surpasses the term of the policy no maturity benefit is paid.

In the case of term insurance plans with return of premium abbreviated TROP, works in quite a similar way the only difference being that there is a maturity benefit associated with these plans. When the policy matures and the policyholder is alive then, in that case, all the premium that is paid by the policyholder is returned to them.

To understand TROP, let us take an exemplary situation.

Suppose you have purchased a TROP worth AED  1000000, for a term of 30 with a premium of AED 25000 per annum. In case the policyholder passes away within the policy period i.e. 30 years then the nominees will get the death benefit i.e. AED 1000000. However, if the policyholder surpasses the policy period then at the end of the policy, they will get the entire value of the premium paid in the term of the policy i.e. AED 7500000.

Points to Ponder When Purchasing Term Insurance Plans with Return of Premium

Although term insurance plans might appear to be the best-suited type of insurance products, there are several important points to be considered when purchasing term insurance plans with a return of premium in UAE.

• Term Insurance plans with return of premium have a feature of paid-up if the policyholder misses out on the payments of premium. In case the policyholder stops making the payment of the premium for a period of three years. In that case, the policy will continue but the benefits offered by the plan will be reduced. At the time of maturity, the premiums will be returned however, if the policyholder passes away amidst the policy period the death benefit paid is less than the sum assured.
• The payable premium for term insurance with return of premium is always higher than regular term insurance plans. In some of the cases, the price difference between both types of plans is equivalent to three times. Therefore, at the time of purchasing TROP one should make sure that they fit their budget or not.
• Term insurance with return of premium provides the option of riders but the money paid for riders is not returned at the maturity of the policy.
• Insurance seekers should not blindly purchase term insurance plans with the return of premium by only focusing on the maturity benefits of the policy.
• Ideally, term insurance plans are cheap and inexpensive but term insurance with return of premium is not.

In a Nutshell

With this thread, it is quite evident that there are no free benefits available in the world. The correct approach to maintain a balance between your investment and insurance portfolios is to keep them separate from each other.

In order to safeguard your family in case of strokes of uncertainties, it is vital to get a term or life insurance plan. However, following the right approach, one should not merge both the segments. For investments, one should rely on market-based securities and other investment vehicles instead of term insurance plans with return of premiums.