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November 17, 2012

Return of Premium Money Back Insurance



Pure term plan does not give anything on maturity, while “return of premium” term plan gives you back all the premiums paid.
In a normal term plan you get back nothing. Return of premium 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. So, it works like a traditional life insurance product and hence, not in the best interest of the saver. There is a vast price difference between a term plan with RoP and a pure term plan. The premium for a term plan with RoP can be Rs3,000 for SA of Rs2 lakh while a pure term plan for SA of Rs2 lakh will cost less than Rs400.
 
Insurance company
Product name
Premium
Aviva Life
Shield Advantage
Rs4,427
MetLife
Met Suraksha TROP
Rs5,382
IDBI Federal
Level cover with ROP
Rs5,673
ING Life
Term Life Plus
Rs6,535
Reliance Life
Special Term Plan
Rs7,630
Birla Sun Life
Premium Back Term Plan
Rs8,254
AEGON Religare
Save Guard (new product)
Rs8,390
Bajaj Allianz
Term Care
Rs9,352
ICICI Pru
Life Guard with RoP
Rs9,854
Shriram Life
New Money Back Term Plan (new product)
Rs12,600
 for term plan with return of premium for Rs10 lakh sum assured; age 27 years; non-smoker; male; policy term of 20 years
 
Just like the premium of an offline term plan is two-three times the premium of online term plans, the term plan with return of premium varies two-three times between the low and high end, even though they are all offline term plans. In the comparison given, the lowest premium was from Aviva Life Shield Advantage of Rs4,427.
 
What if you had purchased pure term plan and invested the saved premium to get 8% p.a. returns? Will it be better than going with lowest premium RoP term plan?
Insurance company product
Premium
Corpus at end of policy term of 20 years
Aviva Life Shield Advantage (RoP term plan)
Rs4,427
Rs88,540
IndiaFirst (online term plan without RoP)
Rs1,563
Rs1,41,413 assuming that the premium difference of Rs2,864 (4,427 minus 1,563) is invested @8% p.a. 
LIC (offline term plan without RoP)
Rs3,356
Rs52,931 assuming that the premium difference of Rs1,071 (4,427 minus 3,356) is invested @8%p.a.
Premium for Rs10 lakh sum assured; age 27 years; non-smoker; male; policy term of 20 years
 
Going for an online term plan without RoP will definitely be an advantage over buying the cheapest term plan with RoP..

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