Question

7. What are some of the basic reasons behind the popularity of Return-of-Premium term life insurance policies? As business students, what other factors would you suggest need to be considered before purchasing such a policy?

Answer 1

In Return of Premium term life insurance policy, premium is paid by the insurer for the whole term of the policy and if the insurer dies during the term of the policy then the policy amount is paid to the nominee of the policy. On the other hand, if the insurer survives the term and pays regular premium then insurer doesn't recieve any money.

Some of the basic reasons behind the popularity of these policies are:-

• Insurer is able to insure the financial stability of his family in case he dies.
• The premium amount payable in these types of policies is generally less than any other kind of policy such as Term Plans.
• It is beneficial for those insurers who are looking for just Insurance cover and not any Return from these policies.

If financial aspects are considered than these types of plans may fail to meet the needs of all the insurers, reason behind the same being that there is no guarantee of repayment of any amount out of the policy (when the insurer survives the term). Further, the return from these policies is comparatively less than any other policy.

To conclude, the factors to be considered would be:-

• The policy would not fetch high returns or may give nil return.
• It would provide with cover to the life but not financial cover to the insurer.
• Benefit of the policy can be available to the nominee of the insured only.