In a normal term plan, the insurance company pays the sum assured when the insured dies. A Term Plan with return of premium is a variant of the term plan. It offers insurance wherein the sum assured is paid in case of death plus returns the premium you have paid in case you survive the policy term. To take a simple example, if a person has taken an insurance of Rs.20 lakhs for 20 years and the annual premium is Rs.5000. If this person dies during the policy term, his family will receive the sum assured but if he survives the 20 year term, he will get back the premium amount paid i.e. Rs.1 lakh.

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.

The benefits of these plans are –

• 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

As you can see, premiums are on the higher side in these plans compared to normal insurance plans or term plans. Of the three products mentioned here, Aviva seems to be a better bet as it has a lower premium when you compare the sum assured that you would receive. Since the premiums will be returned, the higher premium is just like a deposit. You will receive it back if you outlive the policy. Aviva does not offer sum assured lower than Rs. 15 lakhs and the maximum sum assured for ICICI Pru Lifeguard is Rs. 10 lakh which is not sufficient in normal cases.

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.