Know about return of premium option in term insurance: After Corona, people have become very aware about taking term insurance. If you are planning to take term insurance, then first know about the option of return of premium term insurance. Choosing this option while taking term insurance can be a loss-making deal.
What Is Return Of Premium Option In Term Insurance: The demand for term insurance is increasing in the country these days. After Corona, people have understood the importance of term insurance. Nothing is known about the life of any person. Term insurance is very useful in case of any untoward incident. The family gets the benefit of insurance in case of death of the person taking term insurance. The family member (nominee) gets the cover amount in the insurance so that the future life can be better. In term insurance, many people choose such a plan in which if it is not claimed on completion of the time, then the entire amount of the premium is returned. This is called return of premium insurance. It is forbidden to take this type of term insurance.
First know what is term insurance
It is also called life insurance. Any person can take it. Its purpose is to keep the family members financially strong after the death of the person taking insurance. A person can take term insurance of Rs 50 lakh, one crore or more as per the need. It has a premium which has to be paid every month. The amount of term insurance that should be taken depends on the amount of debt, financial dependence of the family members etc.
What is return of premium insurance
Suppose you took a term insurance with a cover of Rs 1 crore for a maturity of 30 years. Its monthly premium is Rs 1000. In such a situation, you will have to pay Rs 3.60 lakh at the rate of Rs 1000 per month for 30 years. This is the situation for ordinary term insurance. On the other hand, if you choose the option of return of premium insurance, then whatever premium you deposit, that amount is returned after maturity. But after choosing this option, the premium amount increases. On the other hand, in ordinary term insurance, no amount is received after maturity.
Term insurance cover: Your current yearly income x remaining no of years upto ur retirement age + inflation + net liabilities = your required term insurance cover value so that in case of death, your family not loses that economic value which you will earn till retirement… https://t.co/Mq9bNsUyzC
— Basant Baheti (@BasantBaheti3) May 30, 2024
Why is return of premium insurance a loss-making deal
While the premium deposited in ordinary term insurance is not returned, the premium deposited in return of premium term insurance is returned. This is the reason why people find return of premium term insurance better than ordinary term insurance. However, its premium is double or even three times that of ordinary term insurance. The advantage of both is the same that after the death of the insured, the insurance amount is given to the family member (nominee). Now understand why it is a loss-making deal like this:
- Suppose a person wants to take a term insurance of Rs 1 crore for 30 years. The premium of a company in ordinary term insurance is Rs 12,000 annually and in return of premium term insurance it is Rs 30,000.
- According to this, a total of Rs 3.60 lakh will have to be paid for 30 years in ordinary term insurance, while a total of Rs 9 lakh will have to be paid in return of premium term insurance.
- In such a situation, you will have to pay Rs 18,000 (Rs 1500 per month) extra every year as compared to ordinary term insurance. It can be understood like this that by depositing Rs 1500 per month, you will get Rs 9 lakh.
- If you take a normal term insurance and invest Rs 1500 every month in SIP, then after 30 years you will get around Rs 53 lakh. This is when the annual return is at an interest rate of 12 percent.
- You can see that if you choose the option of return of premium, then you will get only Rs 9 lakh after 30 years. On the other hand, if you choose a normal term insurance and invest the additional amount in SIP, then you will get Rs 53 lakh after 30 years. In such a situation, choosing the option of return of premium term insurance is not right.
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