Ranveer, Deepika and their two kids are living a comfortable life. Deepika has taken a break in her career to take care of the kids and Ranveer is working in a multinational company. A typical Indian family with a home and a car loan.
Ranveer is doing very well in his career, however he has a niggling fear – if something were to happen to him, what will happen to his family, how will they pay off the loan? So he is thinking of buying insurance.
His advisor suggested that he buys a term insurance of 2 crore which will cost only 14k every year and will cover him till the age of 65. Unfortunately or fortunately if Ranveer lives beyond 65 then he will not get anything from the policy.
Ranveer – I’m paying premium for 35 years and will not get anything in return if I’m alive. I’ll be happy that I’m alive but is there any option where I’ll get some money if I survive?
Advisor – Yes there is an option – Return of Premium (RoP), where you will get the entire premium back if you survive. However a cover of 2 crore will cost you Rs. 40k.
Ranveer – Well that sounds like a better option, at least I’ll get back the premium paid for 35 years.
A term plan, which pays in case of death of the insured but returns the full premium if the policyholder survives the policy term. Sounds like free insurance, right?
Truth be told: If it seems too good to be true, it probably is.
Return of Premium option – Premium paid will be 14 lakh (Yearly premium – 40k for 35 years), you will get back 14 lakh minus GST.
Plain Vanilla Term Insurance – Premium paid will be 5 lakh and Ranveer can invest the remaining 26k. Even a modest return of 8% will give him 48 lakh Vs 14 lakh in the return of premium option.
Return of Premium – A trap for those who always thought paying premium for a Term Policy was a waste.
