Well, imagine if you could enter a 20-year insurance contract and receive all your premiums at the end. Nice, huh? This is the promise of Return of Premium (ROP) term insurance. But is it truly better than traditional term insurance?
Both policies provide life cover, but at different costs and have different long-term benefits. Let’s examine both options fairly, with real numbers, so you can decide which aligns with your financial goals:
A traditional term insurance is simple:
There is a set term (e.g. 20, 30 years) for which you pay the premium annually.
In case of the demise of the insured within the policy period, the nominee will acquire the sum assured.
And if the insured lives to the end of the term, the premiums will go to the insurer, with no maturity benefit applicable.
Pros of Traditional Term Insurance
● Lower premiums – Costs significantly less than an ROP policy.
● Higher coverage for less – Ideal for those who want maximum protection at minimal cost.
● Flexibility – You can invest the premium difference elsewhere for potentially better returns.
Cons of Traditional Term Insurance
● No maturity benefit – You don’t get anything back if you outlive the policy term.
Example:
● Sum Assured: ₹1 Crore
● Term: 25 years
● Annual Premium: ~₹10,000 (for a healthy, non-smoking male in early 30s; may vary)
● Total Premium Paid: ₹2.5 Lakhs
● Maturity Benefit: Not applicable
How Term Insurance Return of Premium (ROP) Works?
A term insurance return of premium policy works like a regular term plan but with a twist:
● You pay a higher premium than a standard term plan.
● If you survive the policy term, the insurer refunds all base premiums paid, excluding taxes, rider charges, and loadings.
Pros of ROP Term Insurance
● Money-back guarantee – Get your premiums refunded if you outlive the term.
● Forced savings – Acts like a low-risk payout mechanism.
Cons of ROP Term Insurance
● Higher premiums – Can be 2–3x costlier than regular term insurance.
● Lower real returns – Inflation reduces the actual value of refunded premiums.
Example:
● Sum Assured: ₹1 Crore
● Term: 25 years
● Annual Premium: ~₹30,000 (indicative; may vary by profile)
● Total Premium Paid: ₹7.5 Lakhs
● Maturity Benefit: ₹7.5 Lakhs (base premiums returned, subject to exclusions)
Financial Comparison: A Realistic View
Let’s compare both policies over 25 years:
| Factor | Traditional Term Plan | ROP Term Plan |
| Annual Premium | ₹10,000 | ₹30,000 |
| Annual Premium | ₹2.5 Lakhs | ₹7.5 Lakhs |
| Annual Premium | ₹0 | ₹7.5 Lakhs (Approx.) |
| Opportunity (₹20K/year invested) | (₹20K/year ₹14.8 Lakhs) (at 7.1% return in PPF*) | NA |
*Assuming investment in PPF at historical average of 7.1% per annum, subject to eligibility limits and continued contributions.
Important Notes:
● Investment return example is illustrative – actual returns may vary.
● ROP provides payout certainty that many conservative investors value.
● Traditional term requires discipline to actually invest the difference.
Important Pros and Cons of Both
The benefits of Traditional Term Insurance
● Cost-effective protection: More coverage per rupee spent
● Investment flexibility: Potential to grow premium savings elsewhere
● Simple structure: No complex maturity calculations
Advantages of ROP Term Insurance
● Premium refund: Complete return of base premiums paid (subject to conditions)
● Forced savings: Helps with disciplined saving for those who struggle with investments
● Psychological comfort: Eliminates the “lost premium” concern
Who Should Choose Which Policy?
Pick Traditional Term Insurance If:
● You want maximum coverage at the lowest cost.
● You’re disciplined about investing the premium difference elsewhere.
● You don’t need a maturity benefit.
Pick ROP Term Insurance If:
● You struggle with saving money and want guaranteed payout.
● You prefer a risk-free refund over market-linked investments.
● You’re okay with higher premiums for psychological comfort.
Last Decision: Who is the winner?
The decision between traditional and ROP term insurance depends on your personal financial personality. While the numbers may favour traditional term insurance with disciplined investing, ROP offers valuable guarantees that appeal to many conservative investors.
Key Takeaway
Evaluate your ability and willingness to invest separately before choosing. Both options provide essential life coverage – the right choice depends on how you want to handle the savings component.