It’s a no-brainer that one must buy life insurance, especially if one has dependents to take care of. While the simplest option is to go for a pure term plan, insurers and insurance distributors often present policyholders with variations or term plans with ‘toppings’.
TROP, or term plan with return of premium, falls into this category of ‘term-plus’ products. Here’s an explainer on the features, clauses and other nitty-gritty of TROP:
What is a TROP?
TROP differs from a basic life insurance policy or what’s called a term plan in one key respect.
A typical term plan provides a policyholder protection over a specified period of time (policy period) in return for regular premium payments. In the event of the policyholder’s death during this period, the insurance company pays the family the sum assured / death benefit under the policy. If the policyholder is still alive at the end of the policy period, the insurance company pays nothing.
But under TROP, even if the policyholder survives, he/she will receive some payment from the insurance company.
How does a TROP work?
Under TROP, if the policyholder dies during the policy term, then his family will receive the death benefit – the same as with a regular term plan. But if the policyholder is still alive at the end of the policy term, then the insurance company will pay him back the sum of all the premiums (excluding any taxes) paid over the policy period. This is the survival benefit.
Hence, the name ‘term plan with return of premium’.
Do TROPs cost more than a regular term plan?
Yes. Given that TROPs not only provide protection (insurance cover for life) but also return the premiums paid if the policyholder survives, they come with higher premiums versus comparable plain vanilla term plans.
As per Policybazaar.com, the annual premium for a Rs 1 crore pure term cover for a 30-year-old non-smoker woman for a 30-year term would start at around Rs 8,000. Compared to this, the premium for TROP could start from Rs 15,000 depending on the insurer.
Should you opt for TROPs?
If you are looking for a cost-effective and affordable way to insure your life, a term plan and not TROP is the best way to go. This is also what many investment advisors recommend.
The return of premium may seem like an attractive option because you are being returned all the premiums you paid. But once you account for the time value of money – premiums paid during the policy term are worth more than the same premiums being returned to you at a much later date – a TROP may not seem like a great offer.
But there’s an alternate view too. “In general, TROP plans tend to be slightly more expensive than regular term plans, with a cost that is approximately 1.8x to 2x higher. However, the peace of mind and financial security offered by TROPs makes them a valuable investment for those looking for comprehensive protection,” says Rhishabh Garg, Head - Term Insurance, Policybazaar.com.
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