New Year, New Responsibility: Who Should Take Term Insurance, Who Shouldn’t—and the Truth About Return of Premium
— Written by Dr. Vinay Prakash Tiwari, Founder, Daddy’s International

Discussions around term insurance usually begin after an unfortunate incident. In reality, term insurance is a decision meant to be taken before anything goes wrong. Before getting into debates around Return of Premium, it is important to clearly understand who should take term insurance and who should not.

Term insurance should be taken by anyone whose income supports others. Salaried professionals, business owners, newly married couples, parents of young children, and individuals with home loans or business loans all fall into this category. For them, term insurance acts as a financial shield, ensuring that the family’s standard of living is not disrupted in the absence of the earning member. Taking term insurance between the ages of 20 and 35 is generally considered ideal, as premiums are lower and coverage is higher.

On the other hand, term insurance may not be necessary for individuals who have no financial dependents, or those who already possess a sufficiently large corpus that can sustain their family for life. In cases where age is significantly high and premiums become disproportionately expensive, purchasing term insurance may turn into an emotional decision rather than a practical one.

Another concept commonly associated with term insurance is that of riders. Riders are optional add-ons attached to the base policy by paying an additional premium. Their purpose is to enhance protection—not to complicate the policy. This is where careful selection becomes crucial, because not every rider is worth buying.

Among riders, a few are genuinely useful. An Accidental Death Benefit Rider provides additional compensation if death occurs due to an accident. A Permanent Total Disability Rider can offer financial support if an accident permanently ends the policyholder’s ability to work. In certain situations, a Critical Illness Rider may also be relevant, provided its conditions are clearly understood and aligned with actual needs. Many other riders, however, serve more as marketing tools than real protection, increasing the premium without offering meaningful benefits at the time of claim. The principle should be simple: fewer riders, but the right ones.

This is where the discussion often shifts to Return of Premium (ROP). Term insurance, by design, is a pure protection product. Its sole purpose is to secure the family financially in the event of the policyholder’s death. It does not promise maturity benefits or investment returns.

In a Return of Premium variant, however, the insurer promises that if the policyholder survives the entire policy term, the base premium paid will be returned. While this sounds appealing, it is important to understand that this is not a return or profit—it is merely your own money coming back, without any interest. Taxes, rider premiums, and additional charges are not refunded.

This emotional appeal comes at a cost. ROP plans are significantly more expensive because insurance companies carry a double liability—paying the sum assured in case of death, or refunding premiums if death does not occur. As a result, ROP term plans typically cost 60 to 100 percent more than standard term insurance.

For instance, where a regular term insurance plan might offer a ₹1 crore cover at an annual premium of ₹10,000–₹12,000, the same coverage under an ROP plan could cost ₹18,000–₹22,000 annually. Over decades, this means paying substantially more just to receive the same money back later—without growth.

From my experience in education and financial literacy, one principle stands firm: insurance and investment should not be mixed. Insurance is meant for protection, while wealth creation should be handled through dedicated investment instruments. While Return of Premium offers emotional comfort, financial prudence still lies with plain term insurance.

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⚠️ Disclaimer: Mutual fund and stock market investments are subject to market risks. The examples and returns mentioned are purely illustrative. Future returns are uncertain — as per SEBI disclaimer, past performance does not guarantee future results. Please consult a SEBI-registered financial adviser before making any investment decisions.

Written by Dr. Vinay Prakash Tiwari, Founder – LTP Calculator Financial Technology Pvt. Ltd & Daddy’s International School & Hostel, Bishunpura Kanta, Chandauli, UP