Which Term Insurance Plan Should You Choose

Suppose you are buying a bicycle helmet. Though you put it on every day to protect yourself, after ten years of being safe and never getting into an accident, you might think that you dont really need the helmet anymore. Are you then going to return to the shopkeeper and ask for your money back? The majority of people would just smile and say, No, that is not how shops work!

But, well, when it comes to life insurance, a lot of folks in India are actually asking the same thing. They ask, If I pay every year for the protection of my family, and I remain healthy and safe, will I get anything back at the end?

It is exactly for this reason that a particular type of plan has been made available; we call it a term with return of premium plan. Now, to help you make the choice that will be best for your family and your finances, let me explain this in very simple terms.

What is Regular Term Insurance?

To understand the return of premium plan, it is necessary to first understand what regular term insurance is. Regular term insurance is the most basic form of life protection. You transfer a small amount of money, which is called a premium, to the insurance company every year. In return, the company guarantees a huge sum of money to your family in case something unfortunate happens to you.

For instance, a healthy person aged 30 years may pay around Rs. 10,000 every year. In case he or she dies during the policy period, his or her family will get Rs. 1 crore. This money can be used by the family to meet their basic requirements like food, the education of children, home loans, etc.

But what if the person survives the entire policy term? In regular plans, the story ends here. No money is returned to you. The money you paid is gone; it is like the money you pay for car or bike insurance.

Term with Return of Premium Plan

Most of the people in India dislike the idea of receiving a zero return. They think that their money goes to waste if they live long and healthy. To satisfy this emotion, some sad companies came up with the term return of premium plan.

Basically, it is a term insurance at first, but personal use of the policy is possible at the end. The insurance company hands over the entire amount of premiums that have been paid over the years to the policyholder in case he/she survives the policy term.

If a person has paid Rs. 20000 every year for 30 years, then he/she will be paid Rs. 600000 at the end of the policy. Its like a huge piggy bank that is also at your service in case of death.

The Catch is: We All Know Theres No Such Thing as a Free Lunch

Isnt it great to get all your money back? But there is one important thing you shouldnt forget. The term with return of premium plan is very much more expensive than a regular term insurance plan.

The annual premium for a return of premium plan can be twice or even three times the price of a regular plan. This is because the insurance company has to keep your money, invest it, and make sure they have enough money in the end to pay you back after 30-40 years.

Comparing Your Options

Let us see how these two choices stack up against each other for a normal household:

Which One Should You Go For?

In order to choose the most suitable one for your family, first get an idea of your lifestyle, including daily routines, and how much you can afford.

You Should Get Regular Term Insurance When:

• Price is the primary consideration for you: A great deal of insurance coverage can be purchased with a very minimal price if you are young or have financial constraints.
• You are well versed in investing: The extra cash you saved by not buying a pricey policy can be invested in a public provident fund (PPF), mutual funds, or fixed deposits. Those savings over 30 years may grow to an even bigger sum than the insurance payout.

You Can Go For a Term with a Return of Premium Plan If:

• The thought of throwing money away really gets to you: If for 30 years you have been thinking that you will receive nothing back, this plan can relieve your worries.
• You are not disciplined about saving: If you know that extra cash left in your bank account will mostly end up being spent on luxuries, festivals, or vacations, then this plan will definitely be your saving partner.

Conclusion

When it comes to the most important feature of any term insurance, it is to pay for your familys expenses after you have gone. Each of these might plans will do so flawlessly.

If you can spare some funds and like the idea of having the assurance of a refund, then the term with return of premium plan is a good pick. Otherwise, if keeping your monthly outflows as minimal as possible while protecting your family is something you would like to do the most, get yourself a regular term plan. Discuss it with your family, see where your monthly savings stand, and pick the one that gives you good sleep at night.

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