The importance of a life insurance as a part of one’s financial planning cannot be over-emphasised, and yet, many of us fail to include a life insurance plan in our financial product mix. With rise in standard of living along with a steady growth in inflation rates, it is imperative to account for a solid financial foundation to ensure that your family is protected even in when you are not there to take care of their financial needs.
The most common and well-known protection product is the pure term plan. It is the cost-effective life insurance plan with maximum coverage that can secure the family’s future in case of any eventuality. Standalone term plans offer substantial death benefits and have the lowest premium options. The insured amount will be payable to the nominee in event of death of policy holder to meet their financial needs. However, if the policy holder survives till the end of policy term, the cover ceases and nothing is payable by the insurer. Pure term plans offer high coverage for a nominal premium and will be more affordable particularly when utilized for coverage over working or earning years and where survival benefit is not expected.
These appeal to aware customers who want financial security for their family, at a nominal premium. However, since traditional India is prudent with day to day expenditure and is conscious of quantifiable returns on their money spent, companies have started offering Term with Return of Premium (TROP) plans.
Term with Return of Premium plans (TROP) is a unique concept under term-insurance where the insured gets all the benefits of term insurance in addition to return of premiums paid towards the policy on completion of policy term, as a survival benefit to the insured.
This works well for life insurance prospects who are uncomfortable about getting no benefit for surviving the term and might see the premiums paid as a sunken investment. TROP plans may also be suitable for occupations with irregular income as they offer proportionately reduced benefits in case of non-premium payment unlike a term plan which will simply get lapsed.
Zero Cost: TROP plans which, while, requires higher premiums to be paid, offer survival benefit, in which all premiums paid are returned to the policy holder at the end of the policy term in case of no claims. So effectively TROP plans, such as Exide Life Smart Term plan can be seen as a ‘zero cost’ plan.
Lower GST charges: Furthermore, Pure Term exacts an 18% GST across all premiums whereas TROP GST is 4.5% in year one and 2.25% on premiums thereafter
It is also advisable to customise your policy with riders. Including riders to your policy is a cost effective way to strengthen the policy as it provides multiple additional benefits. Some of the common riders offered on TROP are –
Critical Illness Rider–There are certain predetermined diseases under critical illness like – cancer, heart attack, coronary artery bypass and paralysis, that can affect bring major changes in one’s life. Fixed benefit insurance offers double claim benefit and pays a lump sum on diagnosis. This amount can be used for funding high treatment costs as well as post hospitalisation expenses. Being a fixed benefit plan, there is a guaranteed payout that is not tied to the actual spends
Accidental Death, Disability and Dismemberment–This rider provides a certain percentage of sum assured to the policy holder in case of an accident that causes death, permanent disability or even maiming of the body. The key feature of this rider is that it helps the insured get a certain amount of money for a specified period of time following the accident that caused the disability or dismemberment. In case of death, a sum, additional to the cover, is paid to the nominees.
However, before incorporating riders in your plan it is important to assess the need for specific riders and understand the inclusions and exclusions.
Premiums across insurances policies increase with increasing age and term plans always have lower premiums as compared to TROP for the same coverage. However, both Term and TROP plans offer protection to the customers and act as an income source in the case of the early demise of the breadwinner. It is important to understand that similar to purchasing any insurance, customers must compare all insurance plans available in the market and try to identify the one that is most relevant to their requirements.
Life Insurance safeguards your financial needs at a very nominal cost and it is apt to consider premiums paid as savings rather than investments.
The author is Director, Product Management and Customer Service, Exide Life Insurance