Thinking of investing in term coverage combined with income? know this

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Thinking of investing in term coverage combined with income? Know it

Highlights

  • A Term Plan with Return of Premium (TROP) is a variation of the Term Insurance Plan
  • Premiums paid for a variant of the TROP contract are returned as a maturity benefit and are tax exempt
  • The Income Tax Act allows a total deduction of up to Rs. 1.5 lakh

New Delhi: Nowadays, many life insurers offer different offers in order to encourage people to invest in their products. Some of these products are term life insurance which are plans that bundle life coverage with regular monthly payments. Insurers that offer these products often present them as plans that offer dual benefits, that is, that combine regular pension with life coverage.

In the case of such products, instead of providing income, the policy will provide monthly payments, which will be a certain percentage of the base sum insured. This may attract some people because not only will this policy provide life coverage but, if survived, it will also provide regular income, much like a pension at age 60.

In the event of the death of the insured, the death benefit payable to the nominee will be paid after deduction of the monthly income which has been paid until death.

However, there is a catch that many people might ignore. Instead of providing income, these types of policies will provide monthly payments, which will be an extremely small percentage of the base sum insured. This plan is nothing more than a variation of the Term Insurance Policy with Return of Premium (TROP). If you opt for such a policy, you will have to pay an almost double premium amount each month than what you could pay for a simple term life insurance policy to get the same coverage.

In terms of tax treatment, premiums paid for a variant of the TROP contract are returned as a maturity benefit and are exempt from tax under Section 10 (10D) of the Income Tax Act. returned.

Are you considering investing in such a plan? know this

According to experts, you should take out a term insurance plan that covers you against any future uncertainties. This should be decided on the basis of his financial need. Opting / choosing a policy with the longest duration or choosing the highest coverage may not be the best approach.

The decision should be proportionate to age, income and understanding of requirements. People who are just starting to make money may want to consider term plans that offer increasing coverage, as over time their responsibilities, as well as their financial needs, will also increase. The term with increasing coverage will help protect their growing financial goals / needs. In addition, it can also be effective in protecting against inflation.

However, a term plan, which offers the option of paying life coverage in the form of an income payment for a set number of years, can help households who, in the event of a sudden death of a member employee, need a regular income. Nonetheless, it is always advisable to consult a financial advisor / planner who can help you choose the right plan that best suits your income and goals.


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