Return of Premium in Term Insurance – is it beneficial to you?
Most of you know to protect your dependents in your absence, you need to take term insurance. But recently Exide Life Insurance started a return of premium term insurance.
You know that a Normal Term Life Insurance Policy will not give you back any premiums at the time of maturity.
But this exide term policy is offering to repay full premiums paid.
Their offer may look amazing to some of you.
Let’s try to understand in this article, taking this insurance policy which gives premiums back at the time of maturity.
Read this article why you should not take term life coverage until 85 years of age?. Click this link to read.
Features and Benefits of Exide Life Term (Insurance) with the return of premium plan…
This policy is a non linked and nonparticipating policy.
Key Features of this Policy are…
- Life Insurance Coverage without medical tests.
- Return of total premiums paid at the end of the policy term.
- Flexible premium payment options.
Plan Details and Benefits…
This plan gives you protection during the policy term and the total premiums paid as maturity at the end of the policy term.
Sum Assured on Death is defined as higher of
- Absolute amount assured to be paid on death; or
- * 105% of total premiums paid or
- ’X’ times the Annualized premium for base policy; or
- Sum Assured on Maturity.
Annualized Premium is defined as the Premium amount payable in a year chosen by the Policyholder excluding the
taxes, rider premiums, Underwriting Extra Premiums, and loadings for modal premiums, if any.
Absolute amount assured to be paid on death: Absolute amount assured to be paid on death is equal to Basic Sum
Assured. Basic Sum Assured is chosen at the policy inception
In addition, Total Premiums Paid means total of all the premiums received, excluding any extra premium, any riders premium and
GST plus any cess applicable, if any
Waiting Period means It is a period of first 90 days from the date of acceptance of risk.
In the case of death (other than due to accident) of Life Assured during Waiting Period, only total premiums paid, shall be payable to the Nominee.
However, Waiting Period shall not be applicable for accidental death.
The eligibility conditions for this policy are as given below….
Now, I will show you some illustration with 25 lakh sum assured.
Let’s look at the 25 lakh sum assured illustration for return of premium in this exide term insurance policy…
- Age is 30 years, and
- Premium term is 30 years, and
- the sum assured is 25 lakh,
- In addition, the premium per year is Rs.13,154.
- Moreover, the maturity amount at the end of the term is Rs.3,94,620( Total premiums paid).
Should you buy this return of premium term insurance from Exide Life Insurance?…
I have calculated the return on investment for this policy with the help of the above illustration.
You can see in the above image that the return on investment in this policy is “Zero”.
This is due to you have received only the total premiums paid in the entire policy term as maturity.
Whenever you receive the amount invested as maturity, the ROI is always “Zero”.
What is the difference if you compare exide return of premium term insurance with other company normal Term policy?…
- The premium for Exide term insurance for 25 lakh sum assured is Rs.13,154.
- At the same time, HDFC Life Term Insurance Premium for 25 lakh coverage is Rs.2,896 ( approx).
- In addition, the difference in premium is Rs.10258.
Now, let’s look at the different scenarios if you have invested the above Rs.10,258 at 4%, 6%, 8%, and 10% ROI respectively.
You can see in the above image that Exide Policy only giving risk coverage only.
However, if you take Hdfc Life Insurance normal term insurance and invest balance premium in any other asset class ( not life Insurance), then
the following outcomes will come based on the above image.
- If you have invested balance premium @ 4% after taking HDFC policy, You will get Rs.5,98,332.
- In addition, if you have invested balance premium @ 6% after taking HDFC policy, You will get Rs.8,59,637.
- Again, If you have invested balance premium @ 8% after taking HDFC policy, you will get Rs.12,55,024 at maturity.
- If you have invested balance premium @ 10% after taking HDFC policy, you will get Rs.18,56,118.
Moreover, You can all the above maturities are higher than the maturity amount ( Rs.3,94,620) that EXIDE LIFE INSURANCE COMPANY is promising to pay at the end of the term.
Conclusion about return of premium term insurance plans…
We learned in this article that taking the term insurance policy for the sake of getting premium back at the end of the term.
Also, we learned in such plans, the ROI is “Zero”.
Moreover, we do not know when we will die.
In addition, the extra premium paid ( Rs.10,258) in this article is a waste if the policyholder dies before the policy term ends.
While at the same time if you take normal term insurance and invest a balanced premium, then in case of death during the term of the policy, the nominee will receive the sum assured as a death claim, and the accumulated fund value depending on the asset class invested.
Finally, It is very clear that taking the return of premium policy is not good.
Life Insurance Company is like a hotel.
A hotel do not mind what you eat Idly or Poori.
It just needs business.
Similarly, Life Insurance company needs business.
In addition, they will create new policies to attract you.
You should be aware of the benefits and costs of the policy.
In addition, It’s better to take Insurance Planning from any Sebi Registered Investment Adviser before buying any Insurance Policy.
