As we know, 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. The sum assured is paid in case of death and as a policyholder, you get back the premium you have paid in case you survive the policy term. You can read more about them here. 

On the face of it, it looks like an attractive proposition to the customer who wants returns from an insurance policy. Let us dig deeper.

Here is the premium payment for sum assured of Rs. 30lakhs for 20 years for a 30 year old male.

As you can see, the cost of risk and investment is realized from the customer himself in the guise of a higher premium. It is an expensive product. The returns that you get is simply the money you have paid over the years. It does not seem like a great idea to take this plan. Instead of letting the money go to the insurance company, you can use it to invest in a variety of assets be it fixed deposits, recurring deposits or Mutual Funds. For example if you take the approximate difference between the two plans of Aegon Religare listed above and out of that deposit Rs.1500 monthly in HDFC Recurring Deposit (Rs. 18000 per year), you will get Rs. 279302 at 8.25% interest rate per annum after 10 years, which is just half the policy term.

Insurance has to be treated as protection and not an investment from which you can expect returns. But still if you have to choose between the two types of plans, consider your needs and alternate investment avenues for the extra premium that you will pay for a Term Plan with Return of Premium. If these alternate investment avenues are more beneficial, you should go for a term plan and invest the remaining amount in other assets as per your financial plan.