How does TROP work ?

How does TROP work ? A TROP or term insurance with return of premium is a good insurance product as it returns the premiums you pay throughout the policy period if you outlive the policy. If you happen to die within the term of the policy, your nominee gets the sum assured. The premium rates however are higher in such kinds of term plans.

What are the benefits offered by a TROP?

Apart from returning your premiums, a TROP does not have any other benefit. In other words, you do not receive a maturity benefit if you outlive the policy period. The policy doesn’t build up a cash value so you cannot borrow money from it if you need to. Only when the policy terminates, do you receive the premiums you paid over the years. Let us look at the example below:

Gautam buys a TROP plan for 20 years. Sum assured if Rs. 12 lacs and his annual premium is Rs. 10,653. If he dies within the policy period, his nominee would receive the sum assured of Rs. 12 lacs. However, if he survives, he will receive Rs. 2,13,060 (Rs. 10,653 x 20).

What happens to the interests I pay along with the premiums?

If the policyholder pays any interest along with the premium, he or she is not eligible to get that amount back as only the premium is paid back and nothing else.

Is the premium paid back only at the end of the policy?

In most of the cases, the premium is paid only at the end of the policy. However, in some cases, the insurance company also returns a part of the premium once the policy completes 50% of its tenure. For example, the ING Term Life Plus from ING Vysya pays 40% of the premium after the policy completes half its tenure. In the case of limited or single premium, 20% of the value is returned half way through the policy.

Can riders be added to a TROP?

Yes, you can add riders to a TROP and make it a very suitable overall protection plan. It is however important to note that the premium you pay for the riders will not be paid back to you at the time of return of premium.

Why is the premium higher in a TROP?

The premium for a TROP is higher than that of a simple term plan. This is because the insurance company promises to return the money you pay if you survive the term. The insurance company’s liabilities increase as it is now liable to pay a death benefit in case of death of the policyholder and also pay the premium if the policyholder outlives the policy. Hence the premium is more in a TROP plan.