Term Insurance: “Hey there! It’s super important to have life insurance to protect your family’s future, especially if you’re the only one bringing in the money. But choosing the right plan can be tricky. Most people go for endowment policies, which pay out a lump sum if you die unexpectedly or when the policy matures after a set period, like 10, 15, or even 20 years. But term plans are getting more popular now, and insurance companies are pushing return-of-premium term plans, tempting people with the promise of getting their premiums back. Let’s break down how these return-of-premium term plans differ from regular term plans and which one is actually a better deal.
What’s a regular term plan? Both regular and return-of-premium term plans pay out the same amount if you pass away. The difference is what happens when the policy matures. Regular term plans don’t have a maturity date, while return-of-premium plans give you back all the money you paid in premiums. The catch with return-of-premium plans The offer of getting your whole premium back might sound amazing, but there’s a big catch. The premiums for these plans are much higher, about two and a half to three times the cost of a regular term plan. You don’t get any other benefits besides getting your premium back at maturity, so when you do the math, it actually seems like a bad deal.
The downside of return-of-premium plans Imagine you’re 30 years old and you want a term plan for the next 30 years with a coverage of 1 crore rupees. A regular term plan from ICICI Prudential would cost you around 12,686 rupees per year. But a return-of-premium plan would cost you 28,360 rupees per year. In both cases, you’d get 1 crore rupees if you pass away unexpectedly. But you’d be paying almost two and a half times more for the return-of-premium plan. You’d only get your 8.54 lakh rupees premium back at maturity.
Investing in a SIP is a better deal Remember, you won’t get any interest on that 8.54 lakh rupees. That means, after adjusting for inflation, the value of that money after 30 years would be around 50,000 rupees. Instead of going for a return-of-premium plan, if you choose a regular term plan and invest the extra 1,300 rupees per month in a SIP, you’ll be much better off. After 30 years, you could have around 92 lakh rupees with a 15% return. Even a 7 to 10% annual return would give you 25 to 50 lakh rupees over 30 years. So, think carefully before going for a return-of-premium term plan. You might be better off saving the extra money and investing it wisely!”
