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Premium-back term insurance plans become affordable; here’s how;

Covid virus is proving to be quite callous in its second wave and at this juncture taking Life Insurance and medical Insurance will be of paramount importance as otherwise it would prove to be quite a costly miss and would cost a fortune. So investors are advised to go in for the insurance without any further delay. Your Goodwill provides all the insurance policies at your door steps and hence avail the same.

While there was already a category of term plans – Term Return of Premiums Plan – available in the market, which had maturity benefits – all the premiums were returned back at the end of the policy term, the pricing is at a higher end.

Last week, Sumit and Sudhir – both colleagues at a renowned IT firm in Gurgaon – were over a Zoom call discussing the team’s expansion plans for the current financial year. Once the expansion plan was closed, they got into another discussion around the importance of insurance, especially considering the second wave of COVID-19 engulfing the nation at a pace like never before.

Sumit expressed that the conditions have turned worse, and a lot of people in the team are uninsured as a result of postponing the decision of buying insurance many times in the past – and most importantly a term insurance plan – which is of utmost importance for people who are breadwinners of the family and have financial dependents. Over this, Sudhir had a slightly different view.

Though he agreed that the term plan is a wonderful insurance product as it provides Rs 1 crore cover at an amount as low as Rs. 800 – 1,000 per month, Sudhir believes term plans lack the element of maturity benefit wherein the customer gets back something if he survives the policy tenure.

Quest for Tangible Benefit

Sudhir might just be one of those customers in the market who like the concept of term insurance and understand its importance in one’s life but they often delay the decision and one of the few reasons might be they feel the same as Sudhir – term plans lack maturity benefit. Several prominent insurers are expected to come up with innovative solutions to cater to this particular segment of customers and many plans are expected to come in this direction very soon.

While there was already a category of term plans – Term Return of Premiums Plan – available in the market, which had maturity benefits – all the premiums were returned back at the end of the policy term, the pricing is at a higher end. These plans come at 2x – 3x the cost of a regular term life insurance plan. For instance, a regular term plan for a 30-year old individual with Rs. 1 Crore cover amount comes at a monthly premium of Rs. 1,000 however; a TROP plan for the same individual and for the same 1Crore cover amount may come at a monthly premium of Rs. 2,000 or more.

Insurers Come with Innovative Solutions

In an attempt to make term life insurance plans that return premiums to the customers much more attractive and affordable, few insurers who have come up with revamped term insurance plans have come with features such as an in-built TROP feature and few other options. Specifically speaking of the in-built TROP feature, the customers need not pay anything extra to get the Return of Premium features in their term plan.

For now, this Industry-first feature is available under Max Life Insurance’s Smart Secure Plus plan. Known as the ‘Free Exit Option’, it is free of cost in-built benefit that returns your premium and basis the policy term was chosen by you there are two age brackets at which the premiums are returned if you wish to get your premiums back and exit the plan. First, if the policy term is between 40 – 44 years, the premiums will be returned to the customer on the 25th policy year or 65-years of age, whichever is earlier. Second, if the policy term is more than 45 years, the premiums will be returned on the 30th policy year or 65-years of age, whichever is earlier.

Decoding the Plan

Let us understand this concept in a better way with the help of an example. If a 35-year old customer takes coverage until 75-years – the policy term becomes 40 years; under this combination, the return of premium benefit will be allowed.

If the customer wishes to exit the plan and get the premium back, the same can be availed at 60-years of age – 25th year of the policy term and the premiums will be returned to the customer. Under another scenario, if the customer aged 35-years takes a term cover up to 85-years, the premiums will be returned at 65-years of age – as this is earlier than the 25th year of the policy term. Under the return of premium benefit, all base premiums are paid back until the date to the customer excluding GST on base premium, Rider premiums and GST on Rider premium. For a 35-year old individual, this plan would cost Rs. 1,500 per month for Rs 1 crore sum assured and coverage up to 75-years of age.

The plan is very helpful for the current generation of customers who mostly prefer taking term plans till the age of 80-years. Over the last few years, with changes in lifestyle and earning habits, the retirement age of people being 55 – 60 years and its a concept has taken a change where people wish to be more flexible with future. With this feature of the plan, customers can either continue the plan until the age of 75 – 80 years if they feel there are liabilities to care of or else stop the plan at the age of 65-years and get all the premiums back.

Additional and Very useful benefits

Apart from the return of premiums feature, the plan also hosts a plethora of other impressive benefits for the customers. The product also comes with a low-cost Premium Holiday rider under which the customer can opt for premium holiday twice during the policy term for 1 year each and the cover continues to be intact during the holiday period as well. This feature is very useful in a long-term product especially with job loss scenarios like today’s which can happen once in a 30-40years term.

To avail of this rider, the customer needs to opt for a minimum policy term of 31 years. This option can be used once post the initial 10 years of the policy term. Once the first premium holiday is availed for 1 year, the second premium holiday can be availed once again post another 10years. In case of the customer not taking any premium holidays, the premiums for the last 2 years will be waived off.

Similar to this plan, there are also various other plans that give you very useful features like Terminal Illness Cover built into the plan without any additional cost. Under this plan, you also get a free terminal illness benefit wherein the base cover amount – up to a maximum of Rs 1 crore is paid out in case the life assured is diagnosed with a terminal illness and the rest of the base cover amount is paid on the death of the insured. This feature is available in Max Life’s Smart Secure Plus plan, ICICI Prudential’s iProtect Smart plan and a few more plans Having said that, the Terminal illness benefit under ICICI Prudential plan pays out the entire cover amount on diagnosis of Terminal illness itself, unlike few other plans that have an upper cap on the amount paid at the time of diagnosis. Similarly, Edelweiss Tokio Life’s Zindagi+ plan offers ‘Cover for Spouse’ along with the base plan. Under this plan, in case of your death, the entire life cover is paid to the nominee as well as an amount equal to 50% of your life cover will continue for your spouse with all future premiums waived off which can further come in handy to take care of the family’s future financial liabilities.

Take Note

Everyone is unique and their financial situation is different. What your friend or neighbour purchased might be very different from what would suit your family’s needs. Hence, It is always advised to compare various features and benefits offered under different plans before buying a term insurance plan. You must always choose a plan that rightly caters to your specific needs at the most affordable prices.

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