A term insurance plan is designed to pay the sum assured to your family in case you die during the policy period. However, if you outlive the policy term, no benefits shall be payable. But with a return of premium option, you can receive the paid premiums back at the end of the policy period when the plan matures. While the plan has this advantage and some others, it might have its share of pitfalls too. Knowing both the pros and cons of return of premium term plans would help you make the right call. Let’s read further to do so.
Check Out the Pros and Cons of Return of Premium Term Plans
Let’s start with the pros of return of premium term plans as they come in the following order.
Guarantee of Payment at the End of the Policy Term
You won’t lose the premium paid during the term as the same will be returned to you at the end of the policy term. And this way, you can be assured that your money won’t get wasted and you’ll get something in return should you survive the policy term. This benefit isn’t available in a standard term plan, there you won’t get any maturity benefit. Traditional term insurance is designed to protect loved ones in case the bread earner of the family dies. But with the return of premium, now the insured can get their money back.
Same Premium Throughout the Policy Term
A term plan won’t change the premium during the policy term allowing you to adjust the amount as per your budget. This doesn’t get affected by the ups and downs of the market, assuring you of the payment.
Claim Tax Benefits as per the Applicable Laws
Under section 80C of the income tax act, 1961, you can claim exemptions up to INR 1.5 Lakh on your premium.
Cons of Return of Premium Term Plans
Have a look at the disadvantages of return of premium term plans –
Costlier than a standard term plan
When you choose the return of premium, the amount rises for your base plan. The extent of the rise will depend on your sum assured and the policy terms & conditions, etc. The premium of these plans can be 2-4 times the one you get in a standard term plan.
Premium Return at Maturity May Feel Too Less in Terms of Inflation
The premium you receive at maturity courtesy these plans won’t include any interest, thereby not helping you much in terms of inflation that you may face later. Instead of putting in the extra premium amount to these plans, if you could invest the same in products such as mutual funds, you could benefit more.
Premium Return Not Available During Death
The insurance company won’t return any premium to your nominee should you die during the policy term. So, what’s the point in paying more when you can get the same sum assured even under a standard term insurance plan?