How to Choose the Best Term Insurance Plan with Return of Premium in 2025

Term insurance has become one of the most favored financial products, and for good reason. It's one of the simplest and most cost-effective forms of life insurance, offering a high sum assured for low premiums. This affordability and extensive coverage provide a sense of financial security, ensuring your loved ones remain protected in the event of your untimely demise.

Despite its popularity, potential policyholders often grapple with a common concern: What if they pay premiums for decades and receive no benefit if they survive the policy term? This psychological hurdle can sometimes deter policy-seekers who wonder if there's a more "value-for-money" option.

To address this concern and make term insurance more appealing, many insurers introduced the Return of Premium (ROP) rider to their policies. Under these plans, if the insured survives the policy term, the premiums paid are returned. For individuals looking for both security and a measure of return, term insurance plans with ROP (TROP) are an attractive proposition.

But is TROP the right choice for you? While it offers just what its name suggests, there's more beneath the surface. Before opting for a TROP plan, it's crucial to take a closer look at what ROP in term insurance plans really means.

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Understanding TROP

Say you select a 30-year term and are alive and kicking at the end of the term, the insurer will return the total basic premiums you paid (usually excluding taxes, rider costs, and any underwriting costs). Essentially, this type of policy can be viewed as a combination of protection plus a guaranteed return of your money if the worst-case scenario does not occur.

This scenario clearly showcases how the ROP feature adds a layer of comfort to many policy buyers. Even so, the significantly higher cost of premiums compared to standard term insurance is a major drawback that potential buyers must carefully weigh against the perceived advantages of TROP plans.

Things to Consider Should You Opt for TROP

With TROP products, your financial goals and current life stage can significantly influence the final decision. This is why it is important to keep a few considerations in mind before making the choice. The following is a curated checklist to help you make a well-informed decision.

• Premium Costs
  Since term insurance with ROP requires the insurer to refund premiums if you survive the term, the premiums are higher than those of a regular term plan. Always compare the premium outgo of a standard term policy and an ROP-enabled term plan. Usually, the premium difference is substantial, and drives customers to thoroughly consider whether the extra cost is justified. In our experience, ROP premiums are about 70-100% higher than a standard term plan.
• GST Components
  Standard term plans have 18% GST components while ROP plans have a 4.5% for the first year and 2.5% GST levied on every following year. Despite this, ROP plans are significantly more expensive than traditional term plans. While this means less taxation is levied on TROP products, from an overall perspective, standard term plans still remain the more cost-effective option thanks to their significantly lower premium costs.
• Coverage Period
  You can opt for a term insurance plan that covers you till you are 65 - 75 years. There are even options that cover you till the age of 99, but these are not usually recommended considering the high premiums they incur. This drawback becomes prominent when choosing a policy with a return of premium. At the same time, one must also consider the duration carefully.
  
  Will you need coverage only until you retire, or do you want coverage to extend into your post-retirement years? This depends on the pace at which your dependents reach financial independence. In any case, a longer tenure means you’ll pay premiums for more years, but it also ensures your loved ones have coverage for a more extended period.
• Insurer Credibility
  When selecting any life insurance plan, metrics like the Claim Settlement Ratio (CSR), Complaint Volume, Solvency Ratio and Amount Paid in Claims are critical in helping you evaluate the insurer and get an understanding of their reliability. The better these metrics, the greater the likelihood of your family receiving the coverage amount without unnecessary hassles.
• Additional Riders
  When choosing a TROP (or even a standard term plan!), it's easy to get caught up in the 'returns' aspect. But don't forget about riders! These add-ons can significantly boost your coverage and provide crucial protection against life's curveballs.
  
  Think of riders like extra layers of armor for your financial plan. Riders such as Critical Illness, Accidental Death, Waiver of Premium, and Disability riders, can add real value whether you ultimately opt for a TROP or stick with a traditional term plan.
• Surrender Value or Paid-up Value
  One of the potential benefits of TROP is that some policies may also offer a surrender value if you decide to discontinue the policy mid-term. But the specifics vary across insurers, and it’s essential to understand the surrender terms like the amount you receive when you surrender the policy, guaranteed surrender value and the charges applied when you surrender a policy early. This ensures that if you face a financial crunch or your circumstances change drastically, you’re aware of the potential losses of exiting early.

Top Term Insurance Plans with Return of Premium

Although several insurers offer the ROP feature, let’s look at a few popular ones in the Indian market that consistently rank high in terms of coverage and benefits.

Here’s the list of the best term insurers with the highest CSR that offer TROP with comprehensive coverage:

Now that we’ve talked about the features of TROP policies, it is only fair for us to look at the shortcomings of these plans to help you weigh your decision from a broad, end-to-end perspective.

Disadvantages of TROP Plans

• No Interest on Returns: The returns do not include any interest on the premiums paid. The policyholder receives only the sum of the premiums paid (excluding taxes), which by the time the term ends, would have lesser value due to growing inflation and reducing purchasing power.
• Opportunity Cost: Is TROP really the best use of your money? Let’s discuss this point further through a real-life scenario

If you are a 30-year-old looking at term insurance. A standard plan might cost you around ₹13,500 per year. The same coverage with a TROP feature could easily double that cost to ₹28,700.

Over 35 years, with the TROP, you'd get back ₹10,04,500 (₹28,700 x 35). Sounds good, right?

But what if you took that extra ₹15,200 you're paying each year (₹28,700 - ₹13,500) and invested it instead? That's like investing ₹1,266 each month in a mutual fund.

Even if that mutual fund gave you a modest return of 7% per year, after 35 years, you'd have around ₹22.93 lakhs! That's more than double what you'd get back from the TROP, and that ₹23 lakhs will be more than enough to take care of the current needs of the family and safeguard their future as well.

For further clarity on how we got to this figure, kindly refer to the image below:

Source: Mutual Funds Sahi Hai SIP Calculator

This highlights the opportunity cost of TROP. While you get your premiums back, you miss out on the potential to grow your money much faster through other investments.

• Complexity: Unlike standard term insurance policies, which are easy to understand, and therefore, easier to buy, TROP offerings are complex and require careful evaluation of various features and benefits.

Friendly Disclosure: The actual “best” plan can vary based on individual needs, so it’s critical to do personal research or better yet, speak to one of Ditto’s IRDAI-certified experts and get solid insurance advice. Book a 30-minute call with us today!

Steps to Choose and Purchase the Right TROP

Selecting and purchasing an ROP term insurance plan should be approached with a few methodical steps. The following provides a simplified roadmap to help you navigate the specific nuances of TROP offerings and make a better decision:

Step 1 - Assess Your Coverage Needs and “Peace of Mind” Factor
Start by gauging the financial needs of your family, including ongoing expenses, debts, education costs, and future milestones. This determines the appropriate sum assured. Also, seriously consider how much you value the "return of premium" aspect. Is the idea of getting your money back a major motivator for you, even if it means slightly lower overall returns compared to other investments? This understanding will shape your TROP decision.

Step 2 - Decide the Policy Term and Check Whether it Balances Protection and Return
Your coverage period should ideally span the most critical years of your financial responsibilities. But with TROP, also consider the length of time your money will be tied up. If you choose a 30-year policy, that's 30 years before you see any return. Is that time frame aligned with your long-term financial goals?

Step 3 - Compare Premiums, Benefits and the Return Element Across Insurers
Use online calculators or Ditto Insurance to compare premium quotes. But with TROP, pay extra attention to the fine print surrounding the return of premium. What exactly gets returned (base premium only, or including rider costs)? Are there any conditions that could void the return?

Step 4 - Check for Riders and Factor in the Impact on the Return
Riders like critical illness or accidental death benefits can enhance your protection. However, remember that riders add to the overall premium cost, which means potentially less money coming back to you at the end of the policy term. Carefully weigh the benefits of each rider against its impact on the total premiums paid and, therefore, on the eventual return.

Step 5 - Undergo the Required Medical Tests
Be honest about your health history. Concealing facts can lead to claim rejections or even void the policy entirely, meaning you lose both the death benefit and the potential return of premium. With TROP, the stakes are even higher.

Step 6 - Finalize and Purchase
Finalize your plan, choosing online or offline purchase. With Ditto Insurance, paperwork is handled smoothly. Importantly, ensure your nominee and family know the policy details and where to find the policy documents. Also, make sure they understand the TROP feature and how to claim the return of premium if you outlive the policy term.

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Final Thoughts

Remember, life insurance is a vital instrument in your financial safety net. Whether you opt for a pure term plan or a return-of-premium plan, the primary objective is to safeguard your family’s financial future in case life throws a curveball. By seeking expert guidance, comparing multiple policies, and reviewing the fine print, you can make a well-informed decision that will strengthen your financial standing for decades to come.

At Ditto, our primary objective is to ensure that a life insurance policy does exactly what it’s meant to do—offer robust financial protection for your loved ones in the event of your untimely demise. From a purely logical perspective, TROP (Term Return of Premium) plans often dilute this core purpose. By focusing on premium refunds, these plans can create the impression that insurance should also serve as an investment. But once you factor in the higher premiums, the absence of meaningful returns (no interest or inflation-adjusted gains), and the opportunity cost of not investing the extra amount elsewhere, TROP loses much of its appeal.

Treating insurance premiums as a guaranteed expense can simplify financial planning and help you see insurance for what it really is: a risk management tool rather than a vehicle for returns. In our experience, many individuals who initially find TROP attractive end up disappointed when they compare its long-term financial implications against a straightforward term plan coupled with a systematic investment strategy. This is why, after carefully weighing all the factors, from premium outlay to investment opportunity costs, Ditto generally does not recommend TROP offerings for most policyholders.