I am a 24-year-old and have a term plan for a sum assured of Rs 5 lakh cover for 20 years. The plan will return 15 per cent return of my premium. Should I take another policy with a higher sum assured? Which is better—a pure term plan or a term plan with return of premium (ROP plan) in which premium doubles?
The need for insurance depends on numerous factors like the financial needs of your dependants, your income and the existing savings. A term plan with ROP is a term plan that returns all the premiums paid to the individual if he survives the tenure. This is unlike a regular term plan that has no maturity value. Since an ROP plan returns the amount invested, it charges higher annual premium than a pure term plan. Just like any other (endowment type) life insurance plans, ROP plans, too, have to invest a certain portion of the premium to generate returns to pay up the individual at the end of the term, apart from factoring in expenses like mortality charges and administration expenses (including agent commissions). A pure term plan still remains the cheapest form of insurance. The decision should be based on your risk-taking ability, the capacity to pay premiums and the ability to put balance funds into systematic investment funds.
The need for insurance depends on numerous factors like the financial needs of your dependants, your income and the existing savings. A term plan with ROP is a term plan that returns all the premiums paid to the individual if he survives the tenure. This is unlike a regular term plan that has no maturity value. Since an ROP plan returns the amount invested, it charges higher annual premium than a pure term plan. Just like any other (endowment type) life insurance plans, ROP plans, too, have to invest a certain portion of the premium to generate returns to pay up the individual at the end of the term, apart from factoring in expenses like mortality charges and administration expenses (including agent commissions). A pure term plan still remains the cheapest form of insurance. The decision should be based on your risk-taking ability, the capacity to pay premiums and the ability to put balance funds into systematic investment funds.
