When a person purchases term insurance, he/she is required to pay the premiums during the tenure of the plan. In case the policyholder passes away during the tenure, his/her beneficiaries can receive the sum assured.
But if a policyholder survives the term, then he/she will not receive any benefit. However, the insurer will return the premiums to the policyholder if he/she has purchased a return of premium in term insurance. Hence, this plan can offer death benefit as well as survival benefit.
How Does Return of Premium in Term Insurance Work?
The return of premium in term insurance is a feature under which a life insurance company refunds the premiums paid by the insured person if he/she survives the term of the policy.
The return of premium is an attractive feature offered by many life insurance companies. The way the return of premium works is simple.
For instance, you have taken a term insurance policy of ₹1 crore and you have paid a premium of ₹1 Lakh. If you die during the term of the policy, then the company can pay the death benefit to your nominee. Now, if you survive the term of the policy, then the company can refund the premium of ₹1 Lakh.
Benefits of Return of Premium Term Insurance
The Return of Premium Benefit
The return of premium Benefit in life insurance is a type of benefit that the policyholder receives when the policy matures. Typically, in case of a term insurance plan, the policyholder receives no benefit if he/she survives the term. However, if a policyholder has the return of premium term insurance, then he/she can get all the premiums back after the end of the tenure. This benefit is separate from any death benefit that the policyholder may receive.
The Death Benefit
The death benefit is the amount of money that the insurer pays out to the beneficiaries in the event of the policyholder’s death during the tenure of the plan. Hence, it can ensure the financial security of the policyholder’s family. This death benefit can be used to meet future goals and pay for regular expenses.
One of the most important benefits that term insurance plans offer are tax benefits. The premiums paid to purchase term insurance can be claimed as a tax deduction up to Rs. 1.5 Lakh under Section 80C. The payout is also exempt from tax under Section 10(10D).
The only requirement with the return of premium is to pay the premiums regularly, and the insurance company will give you all the benefits of a regular cover. Return of premium in term insurance is great as it provides a death benefit and survival benefit.