For most financial advisors, the debate between pure term insurance and a term plan with return of premium (TROP) is simple. A pure term plan is more financially efficient. However, this is a purely mathematical argument that often overlooks the most valuable currency in financial planning: peace of mind. For a significant number of individuals, the extra premium for a TROP is a worthwhile investment in their emotional and psychological well-being.
Here’s why the premium for a term plan with return of premium is worth every extra rupee for a particular kind of buyer:
- It Addresses the ‘Use-It-or-Lose-It’ Anxiety
The biggest psychological barrier to buying a pure term insurance policy is the fear of “losing” the premium paid if you outlive the policy term. For a financially prudent person, the idea of spending money on a product that offers no tangible return is unsettling. A term plan with return of premium directly addresses this anxiety. The guaranteed refund of premiums at maturity acts as a powerful motivator and a safety net for those who need the assurance that their money is not “wasted.” This simple feature turns a life-saving tool into a product that also rewards longevity.
- It Fosters Financial Discipline
Many people struggle with consistent, long-term savings. While an advisor might suggest investing the premium difference between a TROP and a pure term plan, few individuals actually follow through on this advice. A term plan with return of premium serves as a forced savings mechanism. The regular premium payments are non-negotiable, and the knowledge of a guaranteed refund at maturity provides a strong incentive to stick with the plan. This feature can be a secret weapon for those who need a structured, no-excuse method to save for a future goal, such as a down payment or retirement.
- It Simplifies Financial Planning
In a world of complex financial products, a TROP offers a straightforward solution. It combines two essential financial goals—protection and savings—into a single product. This simplicity can be invaluable for individuals who don’t have the time, expertise, or inclination to manage a separate term plan and a diversified investment portfolio. A term plan with return of premium provides a clear, concise path to financial security, reducing the cognitive load and complexity of managing multiple financial instruments.
- The ‘Bonus’ is More than a Refund
While the premium refund from a TROP does not beat inflation, it provides a lump sum that you would not have had otherwise. This money can be a welcome surprise in your later years. It can serve as a financial cushion, a fund for a post-retirement trip, or a small inheritance for your children. This “found money” can make a significant difference to your financial comfort and peace of mind at a time when you might no longer have a regular income.
In conclusion, while a pure term insurance plan may be mathematically superior for those who are highly disciplined and financially savvy, a term plan with return of premium caters to a different, equally valid human need: emotional security. The extra premium is not just for a return of money; it’s for a return of peace of mind. It’s a cost many are willing to pay for a product that aligns with their financial psychology and helps them achieve their goals with greater certainty.
