This product is aimed at the group of people who expect something in return on maturity of their policy. Many people especially youngsters do not take insurance on the argument that there is no return. This is against common traditional financial planning prudence. This product aims to satisfy them as unlike a term-plan that doesn't give anything on maturity, RoP term plans give you back all the premiums paid.
- It is a low risk insurance plan.
- It offers premium refund at maturity. So if you outlive the policy term, you get back the premiums paid.
- You can add riders in most of them like disability rider and family protection rider. This helps it become a more complete insurance plan.
- Some ROP plans have a 'paid-up' option. If you default on premium payments after at least three years, the policy continues, but with reduced benefits. The premium paid will be returned at maturity and the nominee will get a reduced sum assured if the insured dies.
- You get tax benefits as per the prevailing tax laws. Currently, the premium paid and the amount drawn are tax free under section 80 C and 10 (10D) of Income Tax Act, 1961 and the sum assured received in case of unfortunate event is tax-free.
Here is a comparison of 3 term plans with return of premium for a 30 year old male for policy terms of 20 years and 25 years
You should generally not look for returns on insurance and therefore try to avoid these plans. If you really need returns on your insurance plan, buy a return of premium plan with a higher term.
In an upcoming article, we compare term plans and term plans with return of premium.