BEWARE!!! "For Financial Protection towards Life just purchase a Simple Pure Term Plan"- Do NOT purchase anything else !!!

BEWARE!!! "For Financial Protection towards Life  just purchase a Simple Pure Term Plan"- Do NOT purchase anything else  !!!

 

    Apart from normal Term Insurance there is something else clubbed with pure term plan which are marketed to get the attention of informed folks seeking term insurance. These are called as TROPs (Term insurance with return of premium)- Continue reading to know more about TROPs and its implications.

-->Why term insurance with return of premium option isn't the best risk cover for you.

    

The 1^st reason is that the premiums of TROPS are twice or thrice those of a regular term plan.

 

·           So, to get the basics first - What is Pure Term Insurance ( or simply Term Insurance)-

Term Insurance is the best way to secure your family’s financial well-being over the long term. They’re cost-effective and simple. Every person with “financial dependents” must consider buying a term plan before thinking about any other investments.

 

·       Pure term plans have one drawback. They don’t offer any payback if you outlive the policy term. You pay premiums for several years and don’t get anything back at the end of the term. There’s one option that’ll seem very enticing to you: “TROP” or Term Insurance with a Return of Premium.

 

👉 Now, the gentle question would be -What is TROP? 😊

àTROP is a type of term insurance plan that offers a benefit to your family in case your death happens during the term, plus a survival benefit to you, should you outlive the term. The survival benefit is a return of all the premiums you pay through the policy duration.

 

·       TROP may sound like a win-win situation where you get your money back in any case. But is that too good to be true? Let’s find out. 😉

 

Ø How is a TROP plan different from a pure term insurance policy?

 

·       The  major differences between a regular term insurance policy and a TROP plan is on Premiums.

 

Premiums: Premiums of a pure term insurance policy are usually very low. In fact, one of the best features of term insurance is the fact that you can get up to a 1000X cover for your annual premiums. On the other hand, premiums for a TROP plan are considerably higher.

 

 Benefits offered: While you get only a death benefit in a pure term plan, TROP plans offer both death and maturity benefits. The higher cost of TROP plans is for the additional assurance that all premiums will be returned to you after the policy term.

 

What is returned and what is not?

 

·       It is important to note even with a TROP plan that not all your payments would actually be returned. Only some parts of the premiums you pay are returned, and even this varies from insurer to insurer. Make sure you go through all the terms and conditions carefully before signing up for a TROP plan.

 

àSo, what you get back with TROP -Generally speaking, here are the parts of the premiums you get back.

 

i)                Base policy premiums that you paid during the policy term are paid back.

 

ii)               Additional underwriting premiums, that is, extra premiums charged based on medical reports, health, habits, etc. are usually returned. Some exceptions exist. Modal loading premiums, that is, additional premiums the insurer charges when you choose to pay the premiums in monthly, quarterly, or half-yearly modes instead of the annual mode, are usually returned.

 

àSimilarly, here are the parts of the premiums that are not returned.

 

i)                Taxes on the premiums you pay are not returned. (As these are paid to the government).

 

Ø Why might TROP plans not be a good option?

 

A TROP plan might seem like a good option to invest in, but in reality, it is not. Here are two reasons why-

1)  Term insurance is the cheapest type of life insurance available today. However, unlike a pure term insurance policy, the premiums of a TROP plan are very high. The premiums are twice or thrice the premium of a regular term plan and, hence, unaffordable for many.

 

2) No Returns on the premiums you pay The exact amounts of premiums you pay are returned by the insurance company on the maturity of the policy - and these amounts do not earn any interest. Further, this premium amount is not even adjusted for inflation. When you calculate the NPV (Net Present Value) of the premiums, you’ll be in for a surprise.

 

 CONCLUSION: -

In our opinion, what you should do is -purchase an adequate simple term insurance cover for your family as a pure term plan and cover the financial risk of your death and Invest the balance amount in any other financial instrument that will give you better returns.

😊Hope you enjoyed or appreciated reading this one. Thank You, keep safe & Be Empowered... 😊

This blog “Finmission’s Class" is an effort to educate and spread the word of financial knowledge and awareness whilst empowering the community with a touch of practicality on personal finance.

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