Term insurance is a cornerstone of financial planning, primarily designed to offer security to a policyholder’s family in the event of their death. Traditional term plans, however, typically don’t offer any returns if the policyholder lives through the term.
Recently, some insurers have launched Double Refund of Premium Term Plans, known as 2X ROP plans. These plans offer a combination of life coverage and a payout option, introducing a new element of flexibility.
These plans provide policyholders with the possibility to exit the plan early, usually a decade before the policy term expires and receive double the total premiums they’ve paid.
According to Varun Agarwal, Head of Term Insurance at Policybazaar, “Pure term life plans solely offer a death benefit, but Double Refund of Premium Term Plans provide life coverage throughout the policy term, along with the option to exit at a specific age, and receive twice the total premiums paid. This payout is often aligned with retirement age, making it a potentially valuable retirement fund or inheritance.”
How 2X ROP Term Plans Function
Here’s a breakdown of how these plans operate:
- Life Coverage: The policy provides financial protection to the nominee if the policyholder dies during the term.
- Early Exit Option: Policyholders can opt out of the plan early—usually ten years before maturity—and receive a refund that is double the total premiums paid.
- Limited Premium Payment: Instead of paying premiums for the entire term, policyholders can choose a limited payment period while maintaining coverage.
- Refund Feature with No Additional Cost: The refund feature is included without extra premium payments.
Pros and Cons
Like any financial product, these plans have their advantages and disadvantages:
Pros:
- Protection and Returns: They offer both life coverage and a refund option.
- Structured Payout: They guarantee a refund, which can be useful for financial goals like retirement.
- No Extra Cost for Maturity Benefits: Unlike some endowment plans, the refund doesn’t require extra charges.
- Tax Benefits: Premiums and payouts may be tax-free under Sections 80C and 10(10D) of the Income Tax Act.
Cons:
- Higher Premiums: They cost more than standard term insurance, considering the added refund feature.
- Fixed Exit Window: The payout is only accessible at a predefined period.
- Limited Investment Potential: The refund doubles the total premiums paid, still other investment avenues may offer higher returns.
- No Partial Withdrawals: Policyholders cannot access funds before the designated exit period.
Key Takeaway
2X ROP Term Plans combine life insurance with structured financial returns. They offer a guaranteed refund but come with higher premiums and fixed timelines for accessing the payout.
As Varun Agarwal suggests, these plans may appeal to individuals who no longer require life coverage after a certain age and want to use the payout as a financial cushion. However, it is crucial to compare costs, benefits, and alternative investment solutions before settling on a decision.
