It's Time To Upgrade Your Protection Cover
Written on Monday, August 22, 2016
By Kushagra Nigam
Thanks to the growing awareness about the importance of life insurance cover, many individuals make sure that they get a Protection/Risk Cover Solution as soon as they start their career.
However, the trouble is, that while buying a risk cover solution the most influencing factor in their mind is the Premium of the Product and thus many end up in making inappropriate choices.
This would inevitably lead to some complications in future. When the person gets married, have kids or takes a huge loan, he or she would need a larger cover. However, buying a cover at that time may not be an easy task.
What are the choices available?
Endowment Plan - Of course, it gives you maturity benefit on survival at the end of policy term as it is a savings product. But the life cover amount is very low. Generally to get life cover of 1 Cr., you need to invest Rs. 10 lacs annually.
Term Plan: Gives you a huge life cover at a very low cost but if you outlive the policy term, it will give you nothing. With the improvement in living standard and advancement in the field of health care, it is more likely that you live longer.
A Solution that offers best of both the World’s
Term with Return of Premium Plan (TROP): This question brings us to the choice that may suit you the most. It gives you the best of both – an endowment plan and pure term. TROP high insurance cover at costs substantially lower than an endowment plan but also gives you back your all premiums back in case you survive at the end of term of your policy.
REASON’s OPT FOR TERM WIH RETURN OF PREMIUM PRODUCT
1.Get no lapse guarantee
If for any reason client is stops paying premium in a term plan after 3 annual Premiums have been paid during the policy term, the risk cover of the client lapses and the premium paid by the client is forfeited by the company. However if client opts for buy a TROP (Term with return of Premium) and for any reason client stops paying premium during the Policy term, his risk cover would still continue on Prorate basis and furthermore, the total premiums paid would also be returned on Maturity.
2. Get Rewarded for Outliving your Term – 99% of us will (Hopefully)
In TROP Plan, on surviving till maturity client is paid back the sum of all the premiums paid (Tax Free) where as in Term Plan all premiums paid are consumed. Thus by paying a little extra premium while opting for TROP, client gets guaranteed return on the extra premium paid. For e.g. as per the above mentioned scenario, by paying extra premium of Rs. 18000/- client will receive Rs. 11.57 Lacs on Maturity as Term with Return of Premium Benefit, with guaranteed IRR of 4.10% Pre Tax. Imagine you were saving Rs. 20000/- in an FD every year returns generated on Maturity after 20 Yrs. through a Fixed Deposit would be turn out to be only 8.26 Lacs and that too Pre-tax
3. Better Protection
In case client misses out on the premium due date, client will get 15 days in order to pay the premium from premium due date if Opted for a Term Plan where as in case of TROP Plan (Term with Return of Premium) client has 30 days from the premium due date as grace period.
4. Free Life Cover
I case of any Uncertainty, client’s family would be protected for Rs. 1 Cr. Sum Assured and in case of Client Surviving till Maturity, sum of all the premiums will be paid back to the client, thus giving financial freedom to the client, as he ends up paying nothing for the risk cover of 1 Cr. if he survives till Maturity.
5. Ability to move to a more economical Product.
Client will also has an option to move to a more economical product in future while opting for Term with Return of Premium, client can forgo his current premium being paid in the TROP Plan and still continue to enjoy prorated risk cover as well as ROP benefit in case of Maturity and still opt for a lower Term with Return of Premium plan if there is any in the market.
6. Negligible Service Tax
In times where Service Tax is going upto 15% on Certain Insurance Products, TROP ( Term with return of Premium) has negligible service Tax Component making altogether more fruitful to the client as affective premium component increases. Service Tax in TROP Product from 2nd Year onwards is as low as 1.87% of the premium paid as compared to 15% in other products.
How is TROP better than a term plan?
“While Varun's family was paid, but Arun's family did not get anything”
Since Arun had bought a term plan, which lapses if premiums are not continued. Therefore, nothing was paid to Arun's family.
What is the return which Varun earns by paying extra premium of Rs.18000/- annually?
So Varun will get Rs. 11,57,040 i.e. the TROP Benefit (Term with Return of Preium)Total Premium Paid by Varun is returned on Maturity.
Guaranteed Net Return of 4.10% on the extra premium that he had paid annually by Opting for TROP