InvestorQ : What is ‘Return of Premium Term Plan’? Shall I take this plan?
vani Patil made post

What is ‘Return of Premium Term Plan’? Shall I take this plan?

Anjali Desai answered.
7 months ago
It is basically a term plan with a return of premium. Due to lack of information, many investors believe that the premium paid on their term plan is premium wasted if they do not die. So, they are bound to compare the term insurance product with an insurance plan where they get back a sum assured towards the end of the policy.

Insurance companies study this behavior and launched a new product called ‘Return of premium term plan’, which can now proudly tell its customers that do not have anything to lose. They get a death claim, and if they do not die within the maturity period of the product, they get back all their premiums paid. Consequently, many investors find this option attractive as ‘all premiums back when one does not die’ seems appealing.

Should you buy it?
The answer is a clear ‘No’, the reason being is simple, even though investors get their money back if they do not die during the maturity period of the plan, they forget the concept of the time value of money. Time value of money is an important concept that cannot be overlooked. However, several other reasons for saying no to this plan are:

Higher Premiums: This plan has usually higher premiums than that of any other plain term plan. So, you are paying higher premiums for getting them back after 30-40 years.

Lower returns: This plan is basically a bundled plan of a normal term plan and an investment policy. Therefore, returns settle slightly higher than that of savings account or sometimes lower as well. Even fixed return rates are attractive than the return provided by these plans.

You are tied up with the product with lower returns: In a wish to receive your premium back, you get tied up to a product with long life, lower returns, and if you will consider the effect of the time value of money, they do not appear to be beneficial.