Choosing the perfect insurance can be as overwhelming as picking the best mango from a huge pile. Some may look good, but they’re pricey, while others may be plain but very efficient. Most Indian families primarily want to keep their loved ones safe, and the two main instruments to achieve this are term insurance plans.
The mighty question here is: Should one opt for the “pure” or the term insurance with return of premium?
First, let us put this in simple terms so you can regard both your family and your budget.
What is a Pure Term Plan?
An illustration would be you giving some money to a security guard who will watch your house. If a thief breaks in, the guard fights off the thief. If no thief comes, the guard simply goes home at the end of the year, and you get no refund. But you are satisfied since your house was safe at a very low cost.
And a pure term plan is just the same as that.
- It is simple: You regularly pay a small amount (premium) over a period of years one chooses.
- The return: Your dependents will receive a big amount of money in case of your demise during this period.
- The limitation: If you live a long and healthy life until the plan runs out, you do not get any money back from the company.
People choose this a lot since it provides a very high cover at a very low cost. At a small price, your family could get ₹1 Crore or more if you are not there.
What is Term Insurance with Return of Premium?
In India, most of us get disheartened when we spend money and get “nothing” back. We all love to save. This is where term insurance with return of premium comes to our rescue.
- How it works: Your life is protected like an ordinary plan.
- The Major Difference: In case you live a healthy life and mature the policy, the insurance will return all your premiums.
- The Catch: Due to getting your money back, your monthly or annual cost will be higher, typically 2 to 3 times that of a pure plan.
Having your money back makes it seem like a “free” plan, but bear in mind that you are paying the price every month, and that too quite heavily, just to get a refund later on.
Why a Pure Term Plan?
There are a lot of reasons for financial professionals to endorse especially pure term insurance plans:
1. It is Very Cost-Effective
You pay hardly anything because the insurer does not have the obligation to give you money if you survive. This can be very handy for youngsters and families who want to allocate their savings for other things such as tuition fees or a new house.
2. You Can Buy a Larger Cover
Low price means you can get a much higher “Sum Assured,” and this is something to be thankful for. Having a ₹2 Crore cover priced less than the ₹50 Lakh cover which pays back your money, is preferable. Time of need, your family deserves more and not just your premium refund. Protected cover with a big sum assured is one valued asset, while pure term insurance is the least priced and most efficient.
3. You Can Invest the Difference
If the cost of a pure plan is ₹10, 000 and that of an ROP plan is ₹25, 000, choosing the pure plan would save you ₹15, 000 every year. Assuming you invest this extra ₹15,000 in a bank or a good fund, it might grow to a much larger amount than the insurance company would give you as a return.
Why Choose Return of Premium?
Despite its higher price, a lot of people in India prefer term insurance that offers a return of premium benefit. Here are some reasons
1. No “Wasted” Money
This is mainly due to our psychological preference. We just hate the thought that money “disappears.” It also feels really good to get a big cheque at age 60 or 70 as a reward for your healthy habits.
2. Forced Savings
In case you have a tough time saving by yourself, this plan will end up saving you. You pay the premium to maintain your life cover, and at the end, you receive a lump sum amount. So it’s not only a piggy bank but also a life protector.
3. Peace of Mind
Some individuals are stressed out paying for a pure term plan as they feel that they are “losing” money every month. If paying a little extra makes you feel comfy and secured then the ROP plan is definitely a good option for you.
Things to Keep in Mind
Before you sign any documents, keep these three simple points at the back of your mind:
- Inflation: The ₹5 Lakh you will spend in 30 years may seem like a lot today. But 30 years from now, that same amount, ₹5 Lakh may just buy a few basic food items because the prices keep going up (inflation). So, your “return” may not be as big as it seems now.
- GST is not refunded: Generally, the tax (GST) you pay on your premium is not refunded. Only the principal amount is returned to you.
- Don’t stop paying premiums midway: If you quit the premium payments halfway, then you may lose the entire benefit or at least the returns.
Which One is Right for You?
Go for a Pure Term Plan if:
- You are looking for the maximum coverage at a minimum cost.
- You are well-disciplined and can invest your savings in a different financial instrument.
- You want to keep your monthly expenses to the minimum.
Get Term Insurance with Return of Premium if:
- You dislike the idea of not receiving the money that you have paid.
- You want a “guaranteed” amount of money when you retire.
- You have sufficient money left over to easily pay the higher premiums.
Conclusion
Insurance really isn’t about earning money; it’s about securing safety. No matter if you go for a regular term insurance or a term insurance plan that gives you back the premiums, the key point is to have one.
There are risks and uncertainties in life, but the future needs to be secure for your family. Choose the insurance plan that your budget allows today to ensure the safety of your dear ones in the coming days. Make things easy for yourself: have insurance and live without worries.