Term plan with return of premium: Why avoid it?
Raj Pradhan | 30 October 2012
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Pure term plan does not give anything on maturity, while “return of premium” (RoP) term plan gives you back all the premiums paid. If you want the feature, you will have to pay a price for it. LIC had a term plan with RoP, but it is no longer available. Price for term plan with return of premium for Rs10 lakh sum assured; age 27 years; non-smoker; male; policy term of 20 years is in range of Rs4,427 to Rs12,600. Such a significant difference in premium has semblance to the wide premium range for online and offline pure term plans. But, this can be justified with online versus offline; the difference in term RoP variation has no proper justification.
In a normal term plan you get back nothing. RoP term plan gives a feeling of comfort—one is getting back all the money paid to the insurance company for the term plan. But you yourself will have to pay for that comfort. The premium for RoP term plan is much higher than what you will pay for a pure term plan. The premium for RoP term plan is used partly for risk cover and the remaining for investment. The part of the premium that is invested is able to give the returns for the RoP feature to work. Is this a good option? Tell us what you think.
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