If you are like most people, a reason that prevents you from buying insurance is the fear of losing your hard-earned money. Most of us are aware that the purpose of a term policy is to cover the policyholder’s life against potential risks. But, since there is a chance of surviving the policy, you may feel uneasy about keeping your money out of reach.
A regular term policy works in a simple way, that is, offering your dependents compensation in case anything happens to the insured individual. The compensation is in the form of a death benefit which the nominee of the policy can claim in case of an eventuality. This death benefit may be provided in the form of a lump-sum payment or regular payouts to replace the income source.
But, what happens if you survive the policy term? With a standard term policy, the policyholder is not entitled to a maturity benefit when the policy tenure ends. This is why many may not be willing to take the risk and let the accumulated wealth over the years go to waste.
Fortunately, there is a way around this concern. But first, let’s understand some basics.
What Is Term Policy With Return of Premium?
A term policy with return of premium is a financial tool that provides the policyholder survival benefits when the policy matures. The policyholder can enjoy the premium back benefit by paying an additional premium over the base policy cost. The other benefits of such a policy are similar to a regular term policy. But, the maturity benefit is a significant advantage that makes a big difference to several policy buyers.
Suppose 30-year-old Priyanka buys a term policy with a return of premium with a life cover of Rs. 50 lakhs with a policy period of 30 years, i.e., till she is 60 years old. According to the estimation of an online term policy calculator, the annual premium she pays for this plan is Rs. 5,605. In case of an unfortunate incident, the sum assured will be payable to the term policy nominee.
In case Priyanka survives the policy tenure of 30 years, she will be entitled to a survival benefit since she has a term policy with a return of premium. This means she will receive all the premiums paid during the policy period. So, the insurance provider will pay her a total sum of Rs. 2.97 lakhs.
Let’s discuss some other term insurance benefits provided by the return of premium variant:
- Assured Returns
The assured returns of the premiums paid during the policy term can be a driving factor for some policy buyers. There may be other insurance instruments that offer returns, but they may not be guaranteed. With instruments offering market-linked investment returns, there can be risk involved. According to a SEBI survey, 33.3% of households hesitate in investing their money because of the risk involved.
However, the term policy with return of premium gives you the confidence and peace of mind that you will receive a significant sum. It also provides the policyholder with the liberty to use the money as per their future requirements.
- Survival Benefit
As mentioned earlier, the key difference between a regular term policy and a term policy with a return of premium is the survival benefit. It can be an ideal option for investors looking for the assurance of life cover and access to their money regardless of the situation.
The policyholder can use the survival benefit upon policy maturity to fulfil certain financial obligations, which require a large sum of money. For instance, the survival benefit can be a substantial addition to your retirement corpus since the term policy period is prolonged.
3. Tax Benefits
A taxpayer is constantly on the lookout to decrease their tax liabilities. Several investment tools offer the opportunity to do so, and term policy with return of premium is one of them.
When you invest in a term policy with return of premium, the premium paid towards the plan is eligible for a tax deduction. Under Section 80C of the Income Tax Act, 1961, the policyholder can avail a tax deduction of up to Rs 1.5 lakh per year for such a term policy.
Moreover, the maturity benefit and the death benefit are exempted from tax under Section 10 (10D) of the Income Tax Act.
4. Rider Benefits
The rider benefits of a term policy are among the best term insurance benefits. It enables the policyholder to expand and maximize the coverage from the term policy to a great extent. Depending on your financial profile and lifestyle needs, you can choose a relevant rider offered by the insurance provider.
Critical illness rider, accidental death and disability rider, waiver of premium rider are some of the commonly available ones that can enhance your policy’s coverage. Make sure to read the policy document carefully and choose a reliable insurer to avoid any future disappointments.
