Pure term insurance vs term insurance with return of premium

Life with all its uncertainties calls for financial products like term insurance. A term insurance plan is a type of life insurance policy that offers financial security for your family in case you’re no longer around. The sum assured payout to your family helps them to meet monthly expenses, keep up with the EMI payments for any loans you may have taken out, maintain their standard of living, and stay on track with their future life milestones.

A term insurance policy’s sum assured is based on your income and it’s recommended to have it be at least ten times your annual income. This way your family gets enough time to financially ground themselves. When choosing a term insurance policy, you will come across a few different types. One of them will be term insurance with return of premium. This type of term insurance offers different benefits than traditional term insurance plans. Let’s explore this further so you know what’s best suited for you.

What is pure term insurance?

A pure term insurance plan is a traditional term insurance plan that only offers protection in case of the demise of the policyholder. That means it only comes with a death benefit. If the policyholder passes away during the policy term, their nominees will receive the sum assured. But if the policyholder survives the term, then the policy terminates and there is no survival or maturity benefit paid.

What is term insurance with return of premium?

Term insurance with return of premium (TROP) has the death benefit in place. But it also comes with a type of maturity benefit. In case the policyholder survives the policy term, they will be paid back all the premiums paid by them excluding the taxes. It’s essential to note that unlike other types of life insurance policies, the maturity or survival benefit in term insurance with return of premium is not the sum assured. It’s only the total premium paid by the policyholder.

Pure term insurance vs TROP: Premium difference

Other than the benefit of return of premium, there’s another considerable difference between pure term insurance and TROP plans. That’s the premium payable itself. The premium payable is higher in TROP plans than in pure term plans. In fact, pure term plans are the most affordable type of life insurance plans out there. They allow you to have a huge sum assured at low premiums.

You can compare the difference between the premiums of the plans by using a term plan calculator online. It’s important to note that premium should not be the sole deciding factor for whether you should opt for a pure term plan or a TROP plan. Instead, you should consider what’s the main purpose of you buying a term plan in the first place.

How to decide which term insurance plan to choose?

You should first assess your coverage needs. This depends on multiple factors including, are you the sole breadwinner of the family, how many dependents you have, what your monthly household expenses are, how much debt you’re servicing and what’s the tenure for each loan, what’s your current level of savings and investments, and what are your family’s future financial goals.

Depending on all these answers, you will know just how much sum assured is ideal for your family. If you need to cover the risk of huge debts or are primarily looking to insure the risk of not being around to financially support your family, then a pure term insurance may be the better option. That’s because it will allow you to opt for a significant amount of sum assured at an affordable premium.

On the other hand, if you don’t need a huge amount of sum assured, you might want to consider term insurance with return of premium. That’s because at the end of the policy term you will be able to recover all the premium paid and can utilise it towards your financial goals at the time.

So, the important thing to do is ask yourself what your objective of buying a term insurance plan is and then assess the features and benefits of different term plans to see which best aligns with your needs.

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