Understanding the Premium Structure of Term Insurance with Return of Premium (TROP)

Most of us don’t mind spending on a luxury. But when it comes to paying insurance premiums, we pause and start thinking. What am I really getting in return? Is this money just vanishing unless something unfortunate happens? And why are the premiums for some term plans higher than others?

A Term Insurance with Return of Premium (TROP) plan is a safety net with a refund policy. Sounds ideal, right? Yes, it is. But before jumping in, it’s crucial to understand how the premiums are actually structured. Because what you pay, and when you pay it, can have a big impact on your overall value from the policy.

What is a TROP Plan, and How Does It Differ from Regular Term Insurance?

In a regular term insurance plan, you pay premiums for a set number of years to secure a life cover. If the policyholder passes away during the term, the nominee receives the sum assured. But if the policyholder survives the term, there’s no payout, as the premiums are not returned.

With TROP, the big difference is this: if you survive the policy term, you get back every rupee of the premiums you paid (excluding taxes, and rider charges). It’s a life cover with a maturity benefit. It blends protection with return of investment, and that is something many Indians appreciate, especially those who are hesitant to buy an insurance product that offers no benefit if “nothing happens.”

How is TROP Premium Calculated?

There’s no fixed formula visible to customers, because insurers use complex actuarial models based on risk probability, life expectancy, income, and return assumptions. Let’s understand the key factors affecting TROP premiums:

• Age: Younger applicants get lower premiums
• Gender: Women usually pay lower premiums
• Smoking habits: Smokers are charged more due to a greater health risk
• Sum assured: Higher coverage means a higher premium
• Policy term: Longer durations often increase the total  premiums
• Health history: Pre-existing conditions may raise the cost
• Riders: Add-ons like critical illness or accidental death come at an extra cost
• Premium payment frequency: Annual, half-yearly, quarterly, or monthly

TROP premiums are noticeably higher because, in this option, the insurance company commits to refund all the base premiums paid, which means they’re taking on more financial responsibility.

TROP Premium Cost Breakdown

TROP premiums are decided based on different components. Let’s break it down so you know what you’re paying for:

1. Base life cover premium: This is the part of the premium that covers the risk of death during the policy term (similar to any term plan).

2. Return of premium component: This part ensures that your premiums are refunded if you survive the term. It’s why the overall cost is higher than a pure term plan.

3. Rider cost (optional): You can choose to add riders (they come at an additional cost, but enhance protection), such as:

• Critical illness cover
• Accidental death benefit
• Waiver of premium

4. Taxes: GST at 18% is applicable on the total premium

5. Policy administration charges: Some insurers may include a small fee to manage the policy (usually already built into the premium)

TROP Premium vs Regular Term Insurance Premium

Here’s a quick side-by-side table to help you compare:

*Subject to policy terms, excluding GST and rider costs

So, if you value security for your loved ones and tangible returns, TROP may feel more satisfying than a “just in case” cover.

Is the Higher Premium Worth It?

Here’s the honest answer: It depends on what you value.

If your priority is affordability and covering major liabilities like home loans (in your absence), a pure term plan is perfect. It offers maximum coverage at minimum cost. But if you’re someone who wants to ensure that your money doesn’t “go to waste” even if you never claim the insurance, TROP correctly fits that mindset.

Many salaried individuals or first-time insurance buyers in India go for TROP as it feels less like “losing money” and more like a disciplined saving and protection combo.

Use the term insurance with the return of premium calculator on your preferred insurer’s site to compare options side-by-side before deciding.

Structure Over Price Tag

When buying a TROP plan, it’s easy to focus only on the premium amount. But that number doesn’t tell the whole story. You need to ask about what you’re getting back, when, and under what conditions.

Take a moment to align the premium structure with your financial goals. If you’re someone who wants a safety net plus most of what you paid, at the end, and you’re okay paying a bit more for that dual benefit, buying a TROP plan might be a smart choice.

Frequently Asked Questions (FAQs)

Why is the premium for TROP higher than regular term insurance?

The premium for TROP is higher than regular term insurance because TROP not only covers your life risk but also guarantees a maturity payout. This “double benefit” requires the insurer to account for survival benefits, which pushes up the premium.

How do insurers calculate TROP premiums?

Insurers consider several factors: your age, sum assured, policy duration, health, lifestyle, and their own expected return assumptions. Actuaries then calculate a balanced premium that covers both the life cover and refund component.

What premium payment options are available in TROP plans?

You can usually pay premiums annually, half-yearly, quarterly, or monthly. Some insurers also offer limited pay options where you pay for a shorter duration (say 10 years) but enjoy cover for a longer term (say 20 years).

Is the maturity amount in TROP taxable?

No, if the plan complies with Section 10(10D) of the Income Tax Act, the maturity benefit is tax-free. However, conditions apply (e.g., premium not exceeding 10% of sum assured), so always check with your insurer.