Term insurance plans normally come in two variants — pure term and term insurance with return of premium (TROP). A common question on consumers’ mind is ‘How much return will I get when buying term insurance?’ People generally think they would get returns by investing in any financial products. However, that may not be the case for all term insurance variants. In this piece, we take a look at the difference between pure term and TROP policy.
Pure term insurance
A pure term plan provides sum assured in case of death of the life insured. The sum assured would become payable in case of death of the life insured during the policy tenure. The policy does not carry a maturity value i.e. in case the life insured survives the policy term there is no benefit payable under the policy. The premium you pay for such a policy is lesser than a TROP policy.
In the case of a term plan with a return of premium, if the life insured survives the policy term, total premiums paid (excluding taxes) is returned to the policyholder. The premium for these plans is higher than a pure term insurance policy.
Suresh Agarwal, chief distribution officer, Kotak Mahindra Life Insurance said, “The needs addressed by both the products are different – for someone looking for a pure risk product for providing financial security to the family, for example, to cover loss of income or to cover a mortgage – pure term plan is suitable as the product provides high cover at low premiums. Usually, the sum assured in case of pure term products is roughly 1000 times, so the premium outlay for the customer would be very low.”
Which product should you opt for?
Both products are good and have different objectives. The one you opt for would depend on your specific need.
Vishwajeet Parashar, EVP & Chief Marketing Officer, Bajaj Capital said, “It is always good to go for a pure term insurance plan instead of buying TROP insurance. However, you must keep few things in mind while planning to purchase pure term insurance. When you plan to buy such insurance, first calculate the need, that is, the cover amount to protect your family in case of your demise. The need will be calculated as per your life stage and the number of family members who need to get protection. Further, you must understand your family lifestyle and the overall expenses and then accordingly decide the policy cover. Thus, the total of this will determine the cover amount you should have.”
Liabilities like personal loans, car loans or home loan have to be added with your overall life cover. The accurate estimate of the need will prevent the burden of EMI repayment from falling on the family in case of death of the bread winner. It will secure the future of children’s education and their livelihood.
“TROP provides relatively lower sum assured (say roughly 300-400 times) so if someone is looking for the return of premiums invested then TROP is the right product for them,” said Agarwal.