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NISM Certifications · NISM-Series-X-B: Investment Adviser (Level 2) · Life Insurance Products

Ms. Anita Rao holds a term plan for 30 years. Her insurer offers a return of premium (TROP) variant at a much higher premium than the pure term plan. Which statement about the TROP variant is correct?

In a return of premium term plan, the higher premium pays for refunding premiums on survival, so the protection cover obtainable per rupee of premium is lower than in a pure term plan. It is a traditional product, not market-linked.

  1. AThe extra premium effectively funds the return of premiums on survival, so the cover per rupee of premium is lower than in a pure term planCorrect
  2. BIt provides a higher death cover for the same premium than a pure term plan
  3. CIt pays an annual survival benefit linked to market returns
  4. DIt is a ULIP with a lock-in of five years

Explanation

A TROP plan returns the premiums paid if the life assured survives the term, so part of the premium is a savings element. Therefore, for the same outlay, the protection cover obtainable is lower than with a pure term plan. It is not market-linked and not a ULIP.

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