Term Plan Vs Term Plan with money back policies By Beena Doshi

When I met my school friends for a reunion this year they all asked me what I do these days? I proudly told them, that I am a Risk Management Consultant. And as a ritual, I asked everyone whether they all had appropriate Term plans to cover their financial risk. They told me that they are not interested in Term Plans as they don’t get anything back if one survives the term. Most of them had other Life Insurance plans which gives them some maturity amount.

That’s when I realized that people in general want to get their money back if they survive the term. That is the reason policies, like term insurance with return of premium policies are so popular. This realization prompted me to write this article to help people to understand how such policy works.

What do you think– Are term insurance policy with return of premium a better option? Let us look at a numerical illustration as numbers speak for themselves. We deal quiet a lot with HDFC life policies. So let us compare them with actual numbers.

HDFC Life Click to Protect 3D Life HDFC Life Click to Protect 3D Life
Name of the Product – Life ( pure term insurance ) Name of the Product – Life with Return of Premiums
Age -30 Years Age-30 Years
Sum Assured – 1 Crore (No Riders) Sum Assured – 1 Crore (No Riders)
Term of Policy -30 Years Term of Policy -30 Years
Annual Premium : 10284 Annual Premium – 26422
Surplus premium you pay every year = 16,138

In the first option the benefit = Rs 1 Crore to the nominee in case of death of the policy holder before age 60.

In the second option, in addition to the death benefit = Rs 1 Crore

The premium of 26422 x 30 = Rs 7, 92,660 ideally will be returned in case of survival at age 60.

But after removing the processing charges and GST, the amount actually you will receive as per the policy rules is Rs 7, 58,520 (Rs 34,000 difference in actual reality)

You are paying an extra premium of Rs 16,138 per year for 30 years.

Now consider a new scenario. What if you invest this surplus Rs 16,138 into some mutual fund and let’s compare that

 Return of Premium Vs Pure Term Insurance + Mutual Funds

Value at Maturity – In case of pure term insurance, you will not get anything at maturity.

But  if you invest your yearly Surplus of Rs. 16,138 into mutual funds

Time Period- 30 Years

Assumed Returns -12%,

Mutual Funds = Rs. 38, 94,627 at maturity

Return of premium policy you are getting Rs 7, 58,520 at maturity.

Now if you see the numbers you are getting Rs. 31, 36,107 surplus in the new scenario

You can decide which option is better!