Return Of Premium Term Insurance - Is It Worth It?
You are out in the market looking out for the best term insurance when you suddenly come across a new product – Return of Premium Term Insurance. You read up a bit on it and you learn that it has all the benefits of a term insurance with the added benefit that if you don't die till the end of the policy tenure, you will get all the premiums that you paid for so far back. Wow, now isn't that cool. You are simply awed by this wonderful product and you are ready to jump in. But wait – did you take into account how much money you will actually get in the end? Let's quickly check if all the hype is actually worth it.
Term insurances insure you for a certain period say 20 years for a fixed premium each year. In case of your untimely death, your dependents get the benefit of the life cover. And if you are still hale and hearty at the time of the maturity of the policy, then you get a pre-fixed amount which is the sum assured at the end of the policy tenure.
This same term policy has been revamped into a new product with a few tweaks. Almost everything stays the same. You are insured for 20 years for a fixed premium each year. In case of your untimely death, your dependents get the benefit of the life cover. However, if you are enjoying life whole heartedly at the time of policy maturity then, you get back the sum total of all the premiums you paid without interest.
For an Indian, preconditioned to think bigger is better, this is an irresistible offer. However, one overlooks one key factor – premiums. A return of premium term insurance policy may have a premium anywhere close to twice as that of a regular term insurance. This means, that if you pay Rs 5,000 as premium for a term policy each year, you would be required to pay close to Rs 10,000 for a return of premium term insurance policy. At the end of the policy tenure which is a good 20 years, you will get back only what you paid as premiums, whereas on a term insurance, you could have just paid Rs 5000 each year and put the rest Rs 5,000 in a PPF or SIP which would have reaped you a comfortable 8-10% interest.
Since, life cover provided by both policies is almost similar, it makes much more sense to go for the traditional term insurance and invest the remainder of your savings wisely in a good financial product.