Do ‘Return of Premium' Plans Make Sense?

Not really. Buy a regular term plan and invest the premium difference in a bank FD or PPF

- Rajalakshmi Nirmal

Last week, an insurance agent approached me to sell a new policy in town. With a sparkle in his eyes, the agent said, “If you survive the policy term, the company will return the premiums you paid.”

I jumped up from my chair. An insurance policy for free? Sounds too good to be true, isn’t it?

Return of Premium (ROP) term plans are popular insurance products and do have takers. That said, these don’t fit the bill for everyone. Here’s a look at things that you should know before giving in to the temptation of buying an ROP term plan and people who can consider this:

ROP term plans – What they are An ROP life insurance policy is one where all premiums paid by the policyholder are returned to him/her if he/she survives the term of the policy. Some insurers promise to return even 110-150 per cent of the premiums paid. However, do note that the premium that will be returned will be what you paid for the base policy; premium paid on any rider opted on the cover will not be returned. And, unlike the regular term cover, these plans offer an option to make the policy paid-up — where you can stop paying the premium but the policy will continue to cover you till end of the policy term for a reduced sum assured (SA). Tax benefits available on regular life insurance policies under Section 80C are available on ROP term plans, too. Maturity benefit, that is, the premium returned, is eligible for tax exemption under Section 10 (10 D).