Term insurance plans offer very high coverage at really low premiums. It is a pure protection plan. It is strongly recommended that every earning member of the family take a term insurance plan. You should take a cover of anywhere between 15 to 25 times your annual income. Keep reviewing it as your income increases.
Since they provide protection and don’t have an investment component, there are no returns in such a plan. In case the policyholder does not die during the policy term, nothing is paid back at the end of the policy term. In a way, you pay some Rs. 12,500 at the start of the year to continue a financial cover of Rs. 1 crore for your family.
Now, there are some people who don’t like the concept of this plan. Since nothing happened to them during the policy term, they want their money back. To meet the demands of such customers, we have a variant of term insurance known as TROP – Term with Return of Premium. In case you survive the policy term, the premiums paid by you are returned to you without any interest.
I would not recommend this option as it turns out to be quite expensive compared to the straightforward and simple term insurance plan. Let us compare the premiums you will need to pay for both variants.
Age – 30 years
Cover Amount – 1 crore
Policy Term – 30 years
The annual premium for both options is as follows:
Normal Term Plan – Rs. 9,500
Term with Return of Premium – Rs. 25,000
That is almost 2.5 times the premium you need to pay every year. If you can easily afford to pay the increased premium, go ahead and take it. I would rather recommend going in for a higher cover in case you can afford it.
Happy to take any questions on this piece… do drop in a comment and we will get back to you.