A detailed comparison between Pure Term Insurance, Return of Premium Term Plan, and Permanent Life Insurance
Sandesh is an IT consultant with a top MNC and living with his wife, kids, and parents. He has two brothers who are studying in different cities. Sandesh’s parents are retired but are undergoing treatment for various ailments. Therefore, he takes care of both his brothers’ education expenses as his parents’ pension goes towards hospitalization and treatment costs.
Sandesh is planning to buy a whole life insurance policy as he has many dependents to take care of. Their livelihood might get affected after his demise if not appropriately planned. Therefore, the whole life plan shall offer insurance coverage up to his age of 100 years, and if he passes away before the completion of the policy term, the death benefit shall be paid to his family. On the other hand, if Sandesh outlives the policy term, all the premiums paid will be returned along with the maturity bonus. He feels the plan will help his family handle the life challenges without any financial trouble, even when he is not around them.
Buying an insurance policy is not an easy task as there are multiple varieties of plans available in the market and can be a tedious task. Although all insurance policies assure financial security for the family in case of any unfortunate event to the policyholder, the scale of coverage and benefits differ in each type. Based on your requirement and budget, you can choose the right policy from these common policy types: Pure Term Insurance, Return of Premium & Permanent Life Insurance.
What is Pure Term Insurance?
This is the classic form of life insurance wherein the sum assured chosen by the policyholder is payable to their nominee or beneficiary on the insured’s death during the policy term. There are no maturity or survival benefits with this plan, and the terms are pretty simple. The premium for such plans is the lowest compared to other insurance policies primarily because of its sole purpose of providing life protection to the insured person.
What is the Return of Premium (TROP) Term Plan?
The term plan with return of premium policies provides the same benefit as that of pure term plans but returns the premium paid at the time of maturity in the event of the policyholder surviving the policy term. Some plans do offer bonuses in addition to the premiums as value addition. Because of these benefits extended by TROP, the premiums are generally higher than the pure term plans.
What is a Permanent Life Insurance Plan?
Permanent Life Insurance is also called whole life insurance plans, these policies provide insurance coverage for the entire lifetime. While there is a fixed tenure for other term plans, whole life plans are valid until your death or up to 100 years in most cases. On surviving the policy term, the policy shall pay the sum assured along with bonuses to the policyholder. Some plans also offer a return of premium, survival benefit and additional bonuses at the time of policy maturity.
Pure Term Insurance vs Return of Premium Term Plan vs Permanent Life Insurance
To better understand the features of each policy and make a purchasing decision, it is better to compare the three policies on various aspects.
| Details | Pure Term Insurance | Return of Premium Term Plan | Permanent Life Insurance |
| Sum assured | A high coverage amount can be availed since the term plan provides pure risk protection and financial commitment. | Being a variant of a term plan, one can choose a high sum assured similar to a regular term insurance policy. | A person can opt for high life cover as it is a type of investment and provides life coverage. |
| Policy term | The tenure of policy can be chosen between 10 to 30 years. | The tenure of term insurance with return of premium policy can be chosen between 10 to 30 years. | The whole life term policy is in force for the entire lifetime of the policyholder. |
| Death benefit | The sum assured benefit is paid on the insured’s death during the policy term. | The sum assured benefit is paid on the insured’s death during the policy term. | The sum assured benefit is paid on the insured’s death during the policy term. |
| Maturity/ Survival benefit | No amount is paid as maturity or survival benefit | Premium paid is returned to the policyholder along with a small additional amount (if any) on surviving the policy term. | The sum assured, premium paid and the bonus is paid if the policyholder survives the policy term. |
| Cost of premium | Lowest of all types of insurance policies. | Higher than pure term plan. | Higher than pure term plan and Return of premium plan |
| Income tax benefits | A policyholder can utilize the following tax benefits:
Tax deduction available for premium paid, under Section 80C of the Income-tax act. Tax deduction available for premium towards critical illness rider, under Section 80D. Tax exemption available for death benefit received under Section 10(10D). |
Tax deduction available for premium paid, under Section 80C of the income-tax act.
Tax deduction available for premium towards critical illness rider, under Section 80D. Tax exemption available for death benefit received under Section 10(10D). |
Tax deduction available for premium paid, under Section 80C of the Income-tax act.
Tax deduction available for premium towards critical illness rider, under Section 80D. Tax exemption available for death benefit received under Section 10(10D). |
| Ideal for | Anyone looking for a high life insurance cover at an affordable cost that will supplement the financial needs of the family in their absence. Also, they do not expect any return or bonus at the time of maturity. | The return of premium life insurance is suited for those who can afford to spend on extra premium and wants to enjoy life insurance coverage and also get the return of premiums at the time of policy maturity. | Individuals with a need for insurance cover for a more extended period have family members depending on them financially and also want to get a return of the coverage amount along with the premium paid. Therefore, they need to be prepared to spend a higher amount towards premium. |
Overall, it is entirely your choice to opt for a certain kind of life insurance policy based on your requirements and preferences. You need to check the features, terms, and guidelines thoroughly to make the right buying decision for a secured future.
