Term Insurance With Return of Premium

A Term Insurance Plan with Return of Premium gives life cover during the policy term and refunds eligible base premiums if you survive the full term, subject to policy conditions. It may suit users who want life cover plus premium recovery. Read more... However, this money-back feature comes at a cost. TROP premiums are usually 2-3 times higher than a regular term plan, and the refunded amount does not grow with inflation. It may suit users who want life cover plus premium recovery. Choose TROP if you want guaranteed premium return and are comfortable paying higher premiums. Choose a pure term plan if your priority is maximum cover at the lowest premium. Read less

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Meaning How It Works Illustration Maturity Differences TROP Cost Who Should Buy Features When Not to Buy How to Choose Eligibility Criteria Documents Required How to Buy Exit TROP Tax Benefits FAQs

Written By

Fathima Tabasum

Reviewed By

Ashok Manwani

What is Term Plan with Return of Premium?

Term Insurance with Return of Premium is generally a non-participating term insurance variant that refunds eligible base premiums at maturity if the policyholder survives the full policy term and the policy remains active.

Under this variant, there are two types of claim benefits:

If you pass away during the policy term, your nominees receive the sum assured as a lump sum death benefit.
If you survive the full policy term, the insurer refunds your base premium paid, provided all premiums were paid on time and the policy remained active throughout.

How Does Term Plan with Return of Premium Work?

A Term Plan with a Return of Premium (TROP) works similarly to a standard term life insurance policy but with an added benefit. Here’s a breakdown of how it functions:

Premium Payments

Pay regular premiums for a specified term, ranging from 5 to 30 years.

Coverage

If you pass away during the policy term, your beneficiaries receive the sum assured, just like in a regular term plan.

Return of Premium

If you outlive the policy term, the insurer refunds all the premiums you paid over the term tax-free. This is the key feature that differentiates TROP from standard term plans.

Cost

TROP policies are more expensive than regular term plans because they return premium features.

Riders

Some insurers offer TROP as a rider that can be added to a regular-term life insurance policy.

Illustration on How Term Plan with Return of Premium Works

Rohan is a 35-year-old software engineer living in Bengaluru. He is married and has a young daughter. Rohan is very conscious about securing his family’s future, so he buys a term plan with a return premium policy.

After researching, Rohan selects a TROP policy with a 20-year term and a sum assured of ₹50 lakhs. So, Rohan diligently pays his premium of ₹25,000 every year. He knows this policy provides life cover and returns the premiums if he survives the term.

Scenarios on How Term Plan with Return of Premium Works

Scenario 1

Scenario 2

Death During the Policy Term

If Rohan passed away during the policy term, his family would receive the sum assured of ₹50 lakhs, ensuring their financial stability.

Outliving the Policy Term

If Rohan has successfully paid all his premiums and is in good health, the insurance company will return a total of ₹5 lakhs (₹25,000 x 20 years) as a tax-free lump sum of the premiums he paid over the 20 years since he has outlived the policy term.

Disclaimer: The above illustration is a hypothetical example created for educational purposes only and does not represent a real-life scenario. Please read your policy documents to understand the terms and conditions clearly.

What to Expect at Maturity in Term Plan with Return of Premium Policy?

When your Term Return of Premium (TROP) policy matures, here’s what you can typically expect:

Base Premiums: The base premiums you paid during the policy term will be returned to you.
Modal Loading Premiums: If you opted to pay your premiums monthly, quarterly, or half-yearly instead of annually, you paid additional modal loading premiums. These are usually returned to you upon policy maturity.
Additional Underwriting Premiums: You might have paid these extra premiums based on medical reports, health conditions, or lifestyle habits. Generally, these premiums are also returned to you.
Rider Premiums: Premiums paid for additional riders (such as critical illness or accidental death benefits) are typically not refunded. However, depending on the specific terms of your policy, there may be exceptions.
Taxes: Any taxes associated with your premium payments are not refunded when the policy matures.
Non-Refundable Additional Underwriting Premiums: Some TROP products may have specific additional underwriting premiums that are not refundable. It’s important to check the terms of your policy for details.

Overall, only base premiums are generally refunded; rider premiums and certain additional charges are excluded. Always verify policy-specific terms.

Term Plan with Return of Premium Vs Pure Term Plan

A term plan is not a usual investment product and is not directed towards the goal of wealth creation. However, it is a wealth protector in case of unfortunate circumstances.

Let’s discuss the striking differences between the Pure Term Plan and the Term Plan with the Return of Premium:

Point of Comparison	Pure Term Plan	Term Plan with Return of Premium
Insurance Claim Benefit	A Pure Term Plan provides only a death benefit as part of coverage.	TROP provides a death benefit in case of death during the policy term. However, in case of survival, it pays out the sum of all premiums paid.
Premium	The premium of a Pure Term Plan is quite affordable and low compared to TROP.	The premium of a TROP is usually 2-3 times higher than the Pure Term Plan for same cover.
Sum Assured	Higher, roughly 10 times your annual income.	Lower, roughly 30-50% less coverage for the same premium outflow
Premium Refund	No Premium Refund in this case	All Premiums paid are refunded on policy maturity
Surrender Value	Does not have any surrender value since there is no savings component	Provides surrender value if the policy is ended early, but after the minimum required period for surrender.
Goal for Investment	Best suited for people whose primary aim is to provide an elevated level of financial security to their family with a high sum insured.	Best suited for people who are looking for optimum financial protection and some return value on the investment.

What is the Real Cost of Return of Premium?

Mahesh is 30 years old and has a wife and two daughters. Since he is the only earning member, he wants to secure his family financially in case something happens to him.

He decides to buy a ₹1 crore term insurance plan for 30 years, but he is confused between the regular term plan and the TROP plan. So, he compares both options.

Option	Annual Premium	30 Year Total Premium	Maturity Refund
Pure Term Plan	₹12,000	₹3.6 lakh	No refund
TROP	₹25,000	₹7.5 lakh	Eligible base premiums returned
Difference Amount	₹13,000/year extra	₹3.9 lakh extra

How Mahesh looks at it:

Both plans give the same ₹1 crore life cover for his family.
The TROP plan costs more, but ensures he gets back what he pays if he survives the policy term.
This gives him a sense of no-loss protection; either his family is financially secure, or he gets his premiums back.

Mahesh prefers certainty over cost savings. He is comfortable paying a higher premium in exchange for getting his money back at maturity, rather than seeing it as an expense with no return like a pure term plan.

Disclaimer: This is an illustrative comparison only. Actual premiums vary by age, gender, health, smoking status, policy term, sum assured, riders, and insurer pricing.

Who Should Buy Term Plan with Return of Premium?

A TROP plan is not suitable for everyone. It works best only for specific financial preferences:

Individuals Who Prefer Guaranteed Returns

If you are uncomfortable with the idea of paying premiums without receiving anything in return, this plan can suit you because you get your base premium back if you survive.

Families Looking for Protection with Discipline

For individuals with dependents, TROP provides life cover during critical earning years while also encouraging long-term financial commitment through regular premiums.

NRIs with Family in India

NRIs who want to financially protect their family in India while also receiving a maturity payout may find TROP plans suitable, subject to applicable tax rules and policy conditions.

People Close to Retirement Planning

Those nearing retirement may prefer TROP as it combines protection with a lump sum and return of premium on survival, which can support post-retirement planning.

Individuals Seeking Long-Term Plans

This plan works best if you are sure you can pay premiums regularly and hold the policy till maturity.

Features and Benefits of Term Plan with Return of Premium

A Term Plan with Return of Premium (TROP) offers life cover during the policy term along with a refund of premiums at maturity. Here are the key features:

Affordable Coverage

A Term Plan with Return of Premium is known for its affordability. Compared to traditional life insurance, the premium for TROP is generally higher, but it provides an attractive proposition of a potential premium refund.

Guaranteed Premium Return

The primary feature of a TROP is the guaranteed return of premium. If the insured survives the policy term, i.e., the policy's maturity, the premiums paid throughout the policy duration are returned. This ensures that the insured receives back the total amount of premiums paid, making it a popular choice for those seeking life coverage and a potential financial return.

Death Benefit

Like traditional term insurance, a TROP policy provides a death benefit to the nominee in case of the policyholder's untimely demise during the term. The death benefit is paid as a lump sum amount and can help provide financial support to the family and dependents left behind. It can cover daily expenses, outstanding debts, children's education, mortgage payments, and other financial obligations.

Riders

Term Plans with a Return of Premium often allow adding additional riders or benefits to enhance the coverage. Common riders include critical illness riders, accidental death benefit riders, waiver of premium riders, and disability riders. Adding riders allows policyholders to customise their coverage based on their specific needs and provides added protection against unforeseen events.

Death Benefit

Tax Benefit

TROP policies offer tax benefits under the prevailing tax laws. The premiums paid towards the policy are eligible for tax deductions under Section 80C of the Income Tax Act, subject to the specified limits. Additionally, the death benefit received by the nominee is generally tax-free under Section 10(10D) of the Income Tax Act, ensuring that the family receives the full benefit without any tax liability.

Premium Payment Options

TROP policies provide flexible premium payment options to match policyholders’ financial needs. These include a one-time lump sum payment at policy inception, regular payments (annual, semi-annual, quarterly, or monthly) throughout the term, “Pay till 60” where premiums stop at age 60, and limited pay options where premiums are paid for a shorter period while coverage continues for the full term.

Maturity Benefits as Refund Amount

The maturity benefit of a Term Plan with Return of Premium (TROP) is a refund of all premiums paid if the insured survives the policy term, excluding taxes and deductions. This lump sum can be used for future financial goals, retirement, or personal needs. Use our term insurance calculator to estimate your premium based on age and coverage.

When is Term Plan with Return of Premium NOT Ideal?

A TROP plan sounds attractive because you get your money back. But in some situations, this feature actually works against you. The table below shows that choosing a regular term plan makes more sense than TROP:

Situation	Why to Avoid
You want maximum coverage at a low cost	Regular term plans give much higher life cover for the same premium
You are focused on wealth creation	The amount you get back may not keep up with inflation, so real returns can be low
You may not continue the policy for the full term	Exiting early can lead to low or no payout, depending on policy terms
You are above the age 50, buying a long term plan	Premiums at this age are high, 20-year inflation will significantly erode the real value of what you receive back

Note: TROP becomes inefficient if you need flexibility, higher coverage, or long-term real value.

How to Choose the Right Term Insurance Plan with Return of Premium Plan?

Selecting the right Term Insurance with a Return of Premium (TROP) option requires careful consideration and evaluation of various factors. Here are a few pointers to help you choose the best TROP policy:

1. Decide Right Coverage & Term

Choose a sum assured that can support your family’s future needs, such as your family’s lifestyle, outstanding debts, children’s education and other financial responsibilities, along with a policy term that covers your working years.

2. Check Premium & Benefits

TROP plans cost 2-3 times higher than regular term plans, so ensure the premium fits your budget while still offering adequate coverage.

3. Understand Policy Terms and Conditions

Review the policy details carefully to know which premiums are refunded at maturity and what is excluded such as taxes or rider premiums.

4. Review Policy Conditions

Check important aspects like premium payment terms, surrender value, exclusions, and conditions for receiving the maturity benefit.

5. Check the Claim Settlement Ratio

Research and evaluate the claim settlement ratio of the insurance company offering the TROP policy. A higher claim settlement ratio indicates a better track record of timely and hassle-free claim settlements. Choose an insurance provider with a good reputation for customer service and efficient claims processing.

6. Select Only Necessary Riders

Riders enhance your policy's benefits. Add critical illness riders, accidental death riders, disability riders, and waiver of premium riders only if they match your actual needs, as they increase the overall cost.

7. Check Insurer’s Reliability

Choose an insurer with a strong track record of claim settlement and financial stability, as this directly impacts how smoothly claims are handled.

Eligibility Criteria for Term Insurance with Return of Premium

Several key factors exist when considering a term insurance plan in India, you typically need to meet the following criteria:

Criteria	Details
Citizenship	Indian residents, NRIs, and PIOs
Age	Usually between 18 - 65 years.
Health Status	May require medical tests, as your health condition and medical history can affect eligibility, premium, and coverage.
Income	Proof of income is required to determine the sum assured you can opt for.
Occupation	Open to salaried, self-employed, professionals, and homemakers. Some high-risk occupations may have restrictions.

Documents Required for Buying Term Insurance with Return of Premium

To apply for a Term Insurance with Return of Premium (TROP) plan, you will typically need the following documents:

Identity Proof

Address Proof

Income Proof

Medical Reports

Note: Depending on the insurance provider, each section requires one or two documents as proof.

How to Buy a Term Plan with Return of Premium Online?

Purchasing a term plan with a return of premium online is straightforward and efficient. Follow these four simple steps:

Decide your Coverage

Choose the sum assured and policy term based on your income, liabilities, and future financial needs.

Select Plan Details

Pick your premium payment option, policy tenure, and add riders if required.

Fill Application & Submit Documents

Enter your personal, financial, and medical details, and upload the necessary documents.

Make Payment & Verification

Pay the premium online and complete any medical checks if required. Once verified, the policy is issued and shared via mail.

What Happens if You Exit a TROP Plan Early?

If you exit a Term Insurance with Return of Premium (TROP) plan before completing the full policy term, you do not get the full “premium return” benefit. Here is what happens:

Policy Cover Stops Immediately: Once you exit your life cover ends, and your family will not receive any payout in case of death after policy exit.
No Return of Premium Benefit: The main feature of TROP is getting back all base premiums paid; this only applies if you stay till the end of the policy term and have paid all premiums. If you exit early, this benefit is lost completely.
Get Surrender Value: TROP plans usually don’t allow surrender in the first few years, typically 2-3 years. After that, you may receive a surrender value, which is much lower than the premiums paid.

Tax Benefits of Term Insurance with Return of Premium

For individuals holding term insurance, several tax benefits can be availed under the Indian Income Tax Act. Here is an overview of the key tax benefits:

1. Section 80C: Premium Payments

You can claim a deduction of up to ₹1.5 lakh per year on the premiums you pay, subject to specified limits based on the sum assured.

2. Section 10(10D): Maturity & Death Benefit

The amount received, whether as a death benefit or maturity payout, is generally tax-free, provided the policy meets the applicable conditions.

3. Section 80D: Health Riders

If you have added health-related riders, such as critical illness cover, the premiums paid for these may qualify for an additional deduction. The limit is up to ₹25,000 for individuals below 60 years and ₹50,000 for senior citizens.

A term plan with a return of premium (TROP) offers life coverage for a specified term along with a refund of eligible premiums at maturity. It is suitable for individuals who prioritise certainty and disciplined savings over cost efficiency.

However, since premiums are significantly higher and returns do not account for inflation, a pure term plan is usually the more practical choice if your goal is maximum protection at the lowest cost.

FAQs about Term Plan with Return of Premium

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Is TROP plan worth buying?

It depends on your goal. If you want life cover plus getting your premiums back, TROP can work. If your priority is maximum coverage at the lowest cost, a regular term plan is usually better.

What is the real return on a TROP plan?

The internal rate of return on most TROP plans is approximately 2-4%. This is typically below the long-term inflation rate of 5-6%. The plan returns your money, not your money's value.

Is maturity benefit of TROP taxable?

Generally tax-free under Section 10(10D), if the annual premium does not exceed 10% of the sum assured. However, if your total annual life insurance premium (across all policies) exceeds ₹5 lakh, maturity proceeds may be taxable under Budget 2023 rules (for policies issued on or after April 1, 2023).

What happens if I stop paying premiums for TROP plan?

Your policy may lapse or become paid-up depending on the terms. In most cases, benefits reduce or stop completely.

What is not refunded in TROP?

Rider premiums, and in most cases, loading premiums (extra charges paid due to health conditions) are not refunded. Always confirm the exact list of exclusions from your specific policy document before purchase.

Are NRIs eligible to purchase term insurance with return of premium in India?

Yes, subject to insurer eligibility conditions, documentation requirements, and FEMA compliance. Tax treatment depends on your residential status and tax treaty between India and your country of residence.

Do I get my money back if I cancel my term insurance with a return of premium?

No. If you exit early, you do not get full premium refund. You may only receive a surrender value, if applicable.

How much more expensive is TROP compared to a regular term plan?

TROP plans are usually 2-3 times more expensive than regular term plans for the same cover.

What happens at claim time in TROP?

If the policyholder passes away during the term, the nominee receives the full sum assured as per policy terms and verification process.

How long does maturity payout take to proceed in the TROP plan?

Maturity payouts are typically processed within a few weeks after policy completion, subject to insurer processes.

Does inflation affect what I receive at maturity under TROP plan?

Yes, significantly. At 6% annual inflation, ₹5 lakh received 20 years from now has the purchasing power of approximately ₹1.56 lakh today. TROP returns your nominal money, not your real purchasing power.

Can I convert my existing pure term plan to TROP?

No. TROP is a separate product with different underwriting and pricing. You cannot convert a regular term plan to TROP mid-way, you would need to purchase a new TROP plan.

What is the free-look period for TROP?

IRDAI mandates a minimum free-look period of 15 days from the date of receiving the policy document. Within this period, you can return the policy if you are unsatisfied. The insurer must refund the premium after deducting any proportionate risk premium and expenses as per IRDAI guidelines.

What happens if I miss a premium payment in TROP?

The grace period for premium payment in TROP varies among insurance providers. If you miss a premium payment, you may have a grace period during which you can make the payment without the policy lapsing.

How does inflation affect the value of benefits received from a ₹1 crore term insurance plan with a return of premium at maturity?

Inflation can significantly diminish the value of the benefits received from a ₹1 crore term insurance plan with a return of premium when it matures. As inflation increases, the purchasing power of money decreases, which means that the amount received upon policy maturity may not buy as much as it would have when the policy was purchased.