My cousin bought term insurance last month. His friend said, "You're wasting money. You won't get anything back."
This confused him. He called me at night. "Did I make a mistake?"
I told him - no, you did the right thing. But let me explain what term insurance really means. And why some people want their money back.
Term Insurance in Simple Words
Let me start from the beginning.
You pay some money every year. If something happens to you, your family gets a big amount. Maybe 50 lakhs. Maybe 1 crore.
If nothing happens? You paid the money. Policy ends. That's it.
So, what is term insurance basically? Think of it like car insurance. You pay yearly. If there's an accident, insurance pays. If no accident? You don't get money back. But your car stayed safe. That's the benefit.
Term insurance works the same way. You stayed alive. That's the real benefit. Your family didn't need the money. Good news, actually.
Why People Feel Bad About This
Human nature is simple. We don't like losing money.
Suresh uncle paid 15,000 rupees every year for 20 years. Total 3 lakhs. He lived till 80. Policy ended at 60. He got nothing back.
His neighbor kept pointing this out. "See, you wasted 3 lakhs."
But think differently. Suresh uncle lived 20 years without money worry. His family was protected. He slept peacefully. Can you put a price on that?
Still, many people don't like this feeling. They want something back.
That's where return of premium comes in.
What is Return of Premium Term Insurance
This is slightly different. You pay a premium for 20 years. Let's say 25,000 rupees yearly. Total 5 lakhs paid.
Policy ends. You're still alive. The company gives you back all 5 lakhs. So your family was protected for 20 years. And you got your money back. Sounds perfect, right?
The best term insurance with return of premium is one that gives you good coverage at a price you can afford without reducing your protection amount.
But wait. There's more to this story.
The Real Cost Difference
Normal term insurance for 50 lakhs coverage: 12,000 rupees yearly Same coverage with return of premium: 28,000 rupees yearly
See that? You're paying more than double.
Over 20 years:
- Normal term: You pay 2.4 lakhs total
- Return of premium: You pay 5.6 lakhs total
Yes, you get 5.6 lakhs back. But you could have invested that extra money somewhere else for 20 years. It would have grown to maybe 12-15 lakhs.
This is the part agents don't explain clearly.
When Return of Premium Makes Sense
I'm not saying it's bad. For some people, it works well.
Meena aunty can't save money. Whatever extra she has, she spends. She knows this about herself.
For her, return of premium is forced savings. She pays higher premium. After 20 years, she gets a lump sum. Otherwise, that money would have been spent anyway.
Also, some people just sleep better knowing they'll get money back. The peace of mind is worth the extra cost for them.
If you're that type of person, go ahead. Buy return of premium.
What Financial Experts Say
Most experts say - buy plain term insurance. Take the money you save and invest it separately.
Let me show you with numbers.
Option 1 - Return of Premium: Pay 25,000 yearly for 20 years. Get 5 lakhs back.
Option 2 - Plain Term Insurance + Investment: Pay 12,000 for insurance. Invest remaining 13,000 in mutual funds or FD.
After 20 years, you'll have way more than 5 lakhs. Maybe 8-10 lakhs or even more.
Plus, you can access this money anytime if needed. With return of premium, you have to wait till the policy ends.
Questions You Must Ask
Before buying any term insurance - with or without return of premium - ask this:
What is term insurance supposed to do?
Protect your family. Give them money if you die. That's the main job.
Getting money back is a bonus feature. Nice to have. But not the main point.
Don't let the "return" part confuse you about the real purpose.
Your family needs 1 crore protection? Then get 1 crore. Whether it's with return or without return, that comes later.
The Smart Way to Decide
Calculate your budget. Let's say you can spend 30,000 yearly on insurance.
Option A: Buy return of premium. Get maybe 40-50 lakhs coverage.
Option B: Buy plain term insurance. Get 1 crore coverage. Still save 10,000 yearly.
Which makes more sense? Obviously option B.
Your family needs maximum protection. That should be priority number one.
Return of premium should not reduce your coverage amount.
Common Myths People Believe
"Return of premium is always better" Not true. Depends on your situation.
"I'm wasting money on regular term insurance" No. You're buying peace of mind and family protection.
"Return of premium is risk-free savings" Not exactly. Inflation eats into the value. And you could earn more elsewhere.
"All return of premium plans are the same" Very wrong. Read the terms carefully. Each company has different rules.
Final Words
What is term insurance about? It's about protecting people you love. Return of premium is just one feature. One option. Not the definition of good insurance. Buy insurance for the right reasons. And whatever you choose, make sure you can pay for it comfortably for many years.
Because missed payments help nobody. Not you, not your family, not the insurance company. Make a smart choice. Not an emotional one. Your future self will thank you.