Life insurance is an essential investment for anyone who wants to secure the future of their loved ones. It provides financial protection to your family in case of your sudden demise. However, with so many life insurance policies available in the market, deciding which one to choose can be confusing. Two popular types of life insurance policies are term insurance and term insurance with a return of premium.
In this article, we will discuss the differences between term insurance and term insurance with the return of premium, their advantages and disadvantages, and which suits you. Let us begin with understanding what term insurance is and what term insurance is with a return of premium.
What is Term Insurance?
Term insurance is a life insurance policy that covers a specified period, typically 5 to 30 years or beyond. The beneficiaries receive a death benefit payout if the policyholder dies within the policy term. However, there is no payout if the policyholder outlives the policy term.
What is Term Insurance with Return of Premium?
Term insurance with return of premium is a variant of term insurance that offers a refund of the premiums paid by the policyholder if they outlive the term. In this type of policy, the premiums are usually higher than regular term insurance. Still, the policyholder can get their money back if they do not make any claims during the policy term.
Term Insurance vs. Term Insurance with Return of Premium: Key Differences
- Payout: Term insurance offers a death benefit payout to the beneficiaries if the policyholder dies within the policy term. In contrast, term insurance with a return of premium provides a refund of premiums paid if the policyholder outlives the policy term.
- Premiums: The premiums for term insurance are generally lower than term insurance with a return of premium. This is because the latter offers a refund of premiums paid.
- Policy Term: The policy term for both types of policies can vary, but term insurance policies usually have a longer time than term insurance with a return of premium.
- Maturity Benefit: Term insurance does not offer any maturity benefit, while term insurance with return of premium provides a refund of premiums paid at the end of the policy term.
Advantages of Term Insurance
- Lower premiums: Term insurance premiums are generally lower than other life insurance policies.
- High coverage amount: Policyholders can choose the amount they need, which can go up to several crores of rupees.
- Flexibility: Policyholders can choose the term that suits their needs, ranging from 5 to 30 years.
- Tax benefits: Premiums paid towards term insurance are eligible for tax deductions under Section 80C of the Income Tax Act, 1961.
Advantages of Term Insurance with Return of Premium
- Refund of premiums: Policyholders can get back the premiums paid if they outlive the policy term and do not make any claims.
- Higher premiums: Although the premiums are higher than term insurance, policyholders get back the premiums paid if they outlive the policy term.
- Flexibility: Policyholders can choose the term that suits their needs, ranging from 5 to 30 years.
- Tax benefits: Premiums paid towards term insurance with the return of
Disadvantages of Term Insurance
- No maturity benefit: Term insurance offers no maturity benefit if the policyholder outlives the term.
- No refund of premiums: If the policyholder outlives the policy term, premiums are not paid.
- No savings component: Term insurance has no savings or investment component, unlike other life insurance policies.
Disadvantages of Term Insurance with Return of Premium
- Higher premiums: The premiums for term insurance with a return of compensation are generally higher than term insurance.
- No returns on investment: Although policyholders get back the premiums paid if they outlive the policy term, there is no additional return on investment.
- Limited coverage: The coverage amount for term insurance with a return of premium is usually lower than term insurance.
FAQs
1. Is term insurance with a return of premium worth it?
It depends on your financial goals and needs. If you want to secure your family’s future and get back the premiums paid if you outlive the policy term, term insurance with a return of compensation might be a good option.
2. How much coverage do I need in term insurance?
Your coverage amount depends on your income, lifestyle, debts, and financial goals. As a rule, your coverage amount should be at least ten times your annual income.
3. Can I convert term insurance with a return of premium to a permanent life insurance policy?
Some insurance companies offer the option to convert term insurance with a return of premium to a permanent life insurance policy. However, the terms and conditions vary between insurers.
4. Can I buy term insurance with a return of premium online?
Yes, many insurance companies offer the option to buy term insurance with a return of premium online. However, comparing different policies and choosing the one that suits your needs is advisable.
Conclusion
Term insurance and term insurance with return of premium are two popular life insurance policies. While a pure term plan offers a death benefit payout to the beneficiaries if the policyholder dies within the policy term, term insurance with a return of premium offers a refund of premiums paid if the policyholder outlives the policy term. Both options have their advantages and disadvantages, and the choice depends on your financial goals and needs. It is advisable to compare different policies and choose the one that provides the best coverage and benefits at an affordable price.
