Term Insurance with Return of Premium (TROP) is a type of Term Life Insurance (TLI) policy that offers a refund of the total premium paid on the policy if the policyholder outlives the policy term. This type of policy provides the benefits of a traditional TLI policy, such as financial protection for the policyholder's family in the event of their untimely death, while also providing a savings component.
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Here’s how Term Insurance with Return on Premium functions.
For example, consider the case of Radhika, a 35-year-old IT professional who is the sole breadwinner for her family. Radhika wants to ensure her husband and two young children are financially secure if something happens to her. She opts for a TROP that covers Rs. 1 crore for a 25-year policy term. In this way, she can rest assured that her family will receive the death benefit in case of her untimely demise. In addition, she will get a refund of all premiums paid if she outlives the policy term.
Term Insurance with Return of Premium (TROP) offers several benefits to policyholders. Some of its key benefits are as follows.
If the policyholder dies unexpectedly, TROP provides financial assistance to their loved ones. The sum assured can cover financial obligations and provide for the family's future needs.
You should get guaranteed yearly returns on your premium (usually between 7% and 8%). This means that if you have invested in an Endowment Policy and are not getting any returns, this plan would be better suited for you because of its guaranteed nature of payments.
TROP offers a savings component in the form of a premium refund if the policyholder outlives the policy term. This makes it a good option for those who want a life insurance policy and save money in the long run.
Term Insurance policies, including TROP, have some of the lowest premiums compared to other types of insurance coverage. This makes it an affordable option for those with limited budgets and incomes.
Premiums paid for Term Insurance policies are eligible for tax deductions under Section 80C of the Income Tax Act 1961.
Please Note: Tax benefits on life insurance are only tax-free under the old regime. All payouts over 5L are now taxable under the new regime for policies bought after April 2023. The sum assured the policyholder's family received is also tax-free under Section 10 (10D) of the same act. If you invest in a TROP plan and then withdraw money after 5 years or more without making any claims on the policy, then there will be no tax deduction at source (TDS). Suppose any claim is made before or during the maturity period. In that case, TDS will apply accordingly, depending on whether it is a partial or full withdrawal.
Here are the eligibility criteria for TROP.
You can buy a TROP at the age of 18 years and above.
The maximum age to buy a Term Insurance policy is 70 years.
The maximum amount that can be insured under this plan is Rs 10 lakhs (1 million rupees).
You can choose from the following premium payment options based on availability.
You can pay your premiums in one lump sum at the beginning of each year.
In this case, you will be charged twice a year for your insurance policy (i.e., once every six months).
You will pay your premiums every three months instead of annually or half-yearly.
If this option is available for your term plan, it will allow you to pay monthly instalments instead of being charged all at once when purchasing an insurance policy.
The claim process for TROP is generally the same as for traditional TLI policies. Here are the general steps involved.
In the event of the policyholder's death, the beneficiary or legal representative must notify the insurance company as soon as possible. The insurance company may require documents such as a death certificate to process the claim.
The insurance company will provide a claim form that must be completed and submitted along with any required documentation. This may include medical records, police reports, or other information related to the cause of death.
The insurance company will review the claim form and supporting documents to determine if the claim is valid and covered under the policy. This may involve an investigation or review of the policyholder's medical history.
If the claim is approved, the insurance company will pay the death benefit to the beneficiary. In the case of TROP, if the policyholder outlives the term, they will receive a tax-free return of the premiums paid.
It's important to note that the specific claim process may vary depending on the insurance company and policy. Review the policy terms and contact the insurance company for guidance on the claims process. Also Read: Life Insurance Claim Process and Required Documents
Here’s a list of frequently asked questions and answers related to Term Insurance with Return of Premium.
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