• Introduction
• What are TROP plans, and how do they work?
• Some basic differences between a regular term plan and a TROP plan
• What parts of the premiums do you get back?
• What is not returned?
• Why TROP plans might not be a great investment?
• What happens if you stop the TROP plan in the middle of the term?

When you survive the policy term - you don’t get anything back! 

That’s the only disadvantage of term insurance and one of the biggest reasons why we are wary of it. We fear the premiums we pay will go down the drain if we live past the policy term. 

We obviously feel more secure if we invest in plans that give out returns. More so because of products that apparently ‘refund’ our invested money to us. One textbook example is a TROP plan or a Term Plan with Return of Premium. 

A TROP is basically a term insurance plan that gives you a maturity benefit. If you survive the policy term, you get a refund of all the premiums you have paid (excluding taxes). This seems quite enticing! 

But, does it have a catch?

Well, that’s what we set out to find in this article. We’ll look at all the benefits and drawbacks that come with TROP plans, and help you assess if they are actually good for you - or a marketing gimmick that’s against your best interests. Let’s find out. 

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As discussed before, a TROP plan returns to you the premiums (minus any taxes) you have paid if you survive the policy term. 

You need to opt for this feature when you purchase the plan. It’s important to note that it cannot be added later. Now - in the case of your unfortunate demise during the policy term, your nominee will be given the cover amount. If, on the other hand, you outlive the policy term - you get back all the premiums you've paid (minus any taxes). 

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While TROP plans come with a maturity benefit, regular term insurance plans only offer a death benefit - meaning, the claim will be paid only if you pass away during the policy term. 

Let’s quickly look at some differences between both these types of term plans.

Let’s take an example. 

Aman buys a term plan with a cover amount of INR 50 Lakhs with the return of premium option. The yearly premium is INR 10000 (without tax) to be paid for a policy period of 30 years. Let's have a look at how the payout will work for regular and TROP plans. 

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The answer is - no. You will not get back everything you've paid. 

Here's what you will receive -  

• The premiums you paid for your base policy. 
• Any extra underwriting premiums. These are charged by the insurance company depending on your health status, lifestyle habits, etc.
• Modal loading premiums, i.e., the extra premium amounts that are imposed by the insurer if you pay the plan premium on a monthly, quarterly, or semi-annual basis.

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Here is a list of things that you won't get under a TROP plan - 

• The premiums for any riders you've added to the plan. However, there may be exceptions, like Bajaj Allianz Smart Protect Goal, etc.
• Some insurers/plans may not give you the extra underwriting premiums (for example: PNB MetLife Mera Term Plan Plus)
• Taxes on the premiums.

So, ensure that you talk to your insurance company and peruse the plan T&Cs diligently before buying a TROP plan. 

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1️⃣ Comparatively larger premiums

The premiums you will need to pay for a TROP will be quite high as compared to regular term plans, almost 2-3x the amount! And so, in our opinion, you should consider investing in a regular term insurance plan and use the extra amount that you'd pay for a TROP to invest in a good financial avenue like mutual funds to get nice, compounded returns - in lieu of TROP plans.

A comparison of premiums for some insurance brands:

Note: These premium amounts are taken on 27.02.23. They have been calculated for a 30-year-old, non-smoker male buying a cover amount of INR 1 Crore and opting for the regular premium payment option, up to the age of 60 years.

2️⃣ No interest or returns on the premiums you've paid

Another significant drawback of a TROP, from an investment perspective, is that you don't get any interest on the premiums refunded to you if you outlive the policy duration. And, the amount you will receive will not have inflation factored in. If you look at a metric known as the ‘time value of money’, you will see how an amount that you feel sufficient today will not hold the same value a few years later. 

A comparison of premiums you'll get back and the value they will hold:

Note: These premium amounts are taken on 27.02.23. They have been calculated for a 30-year-old, non-smoker male buying a cover amount of INR 1 Crore and opting for the regular premium payment option, up to the age of 60 years.

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Discontinuing your TROP plan during the policy term is known as surrender in technical terms. You may want to surrender the plan for a number of reasons like, you find the premiums to be too high, you've found a better plan, etc. 

In this case, you can - 

👉 Quit the plan and get the surrender value
On surrendering your TROP plan, you will stand to receive the applicable surrender value. You can use this money for other investments with better returns. 

Every insurer determines a surrender value factor, based on how many years your plan was active for. 

Surrender Value = Surrender Value Factor x Total Premiums You Have Paid 

(This formula may vary across insurers and products)

👉 Continue the plan on a reduced paid-up basis without paying any more premiums
If you opt for the RPU option, your plan will be converted to an RPU plan till the end of the policy term and you will not be required to pay any more premiums. 

So, in this case - 

• If you pass away during the policy term, your nominee will receive a death benefit that will be proportionately reduced.
  Reduced Death Benefit = Total premiums paid for base plan / Total premiums payable under base plan) x Original Sum Assured 
   
• If you outlive the policy term, you will receive the premiums you paid prior to the RPU conversion. 

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Summing up!
In our very honest opinion, TROP plans aren't a great investment avenue. They do refund your premiums and look good on paper, but you don't get any returns. Ideally, it is wise not to mix up both insurance and investment. Hence, we recommend keeping them separate and not going for a product that offers both. As discussed before, you should consider investing in a regular term insurance plan and use the additional money you'd pay for a TROP plan to invest in good financial avenues like mutual funds to get better returns.

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