Many life insurance clients have expressed anxiety about losing their money if no claims are made throughout the duration of the policy. Life insurance providers are now providing term plan with a return of premium in order to solve this. In other words, if the Life Assured lives out the policy term, the life insurance company will refund every premium that was paid for the policy at the conclusion of the term.
How does a term plan with a premium return operate?
Assume a person pays Rs. 10,000 in annualised premiums for 30 years to purchase a 30-year term plans with the Return of Premium option and a Rs. 1 crore life insurance benefit. The life cover sum will be paid to the life assured’s beneficiaries if they pass away during the 30-year policy period. But, if the policyholder lives after the end of the 30-year policy term, he/she would receive back the premium amount that was paid (10,000*30=3,00,000) less GST, underwriting extra premiums, and premium paid towards riders if any at the conclusion of the policy term.
Benefits of term insurance with a return of premium
- Benefit at maturity: As previously said, receiving a refund of the premium at maturity is the primary advantage of purchasing a return of premium term insurance plan. Therefore, a return of premium term insurance plan ensures that in the event that the Life Assured survives the policy term, the premiums paid over the years are not lost.
- Policy continuation even in the absence of premium payment: Plans with the return of premium term insurance offer paid-up choices in the event that Life Assured fails to make premium payments. This benefit is beneficial for people without a stable or consistent source of income who run the risk of forgetting to make some premium payments. Through this option, the term insurance policy will still be in effect but with fewer benefits, if the Life assured stops making premium payments after three policy years. If the life promised survives the policy term, the premium will be reimbursed at maturity; however, if the life assured passes away, the beneficiaries will only receive a portion of the sum assured.
- Guaranteed returns on premium: Term plans with the return of premiums benefit ensure that, if the life assured survives the policy term, there will be a cash inflow in the form of premium returns at the time of maturity. So, you can choose a term plan with a return of premium option if you want your term insurance policy to ensure returns of premium.
- Tax benefits: Section 80C of the Income Tax Act of 1961 exempts the premium paid on the return of premium term insurance plans from taxes. Under the sections, a total of Rs. 150,000 is exempt. Additionally, Section 10 (10D) of the Income Tax Act exempts the amount received at maturity from taxes. One can avail of these term insurance tax benefits through term plans with a return of premium.
The tax benefits mentioned in the article may not apply if you opt for the new tax regime since many tax exemptions and deductions have been scrapped within the new regime.
- Surrender Value: If a Life Assured surrenders a return of premium term insurance plan, the coverage under the policy is no longer in effect, but he or she may be eligible to receive a refund of some or all of the premiums paid.
Why pick a term plan with a return of premium option?
Each of us is seeking effective strategies to manage money in light of the rising cost of living and our daily obligations. The financial instruments that provide the chance to accumulate wealth and obtain life security can be a great option to do that.
Additional advantages offered by term plans with return of premium options include premium waivers, benefits for accidental passing away, term insurance tax benefits and incapacity, and protection from serious illnesses. For policyholders, investing in a term plan with a return of premium might increase their sense of overall protection.
Choosing on the basis of one deciding criterion, whether it is cost or policy period, may not be favourable. Therefore, to be satisfied with your investment, be sure to take into account the full benefits of a term plan with a return of premium.
Due to the return of premium features and the fact that, in the event that the Life Assured passes away, their family continues to receive the life insurance, many customers find the return of premium term Insurance Plans to be helpful. The advantage of getting your premiums returned is that it protects you from sunk costs and enables Life Assured to accumulate funds.
To have adequate coverage with or without the return of payment, it is crucial for individuals thinking about these term insurance plans to select the appropriate amount of sum assured carefully.
Insurance is the subject matter of solicitation. For more details on benefits, exclusions, limitations, terms, and conditions, please read the sales brochure/policy wording carefully before concluding a sale.