Zero-Cost Term Insurance is a new kind of term insurance that allows policyholders to terminate the plan early and get the premium paid for a longer period. This plan is appropriate for people who are unsure when they will retire.
There were only two kinds of term plans in the insurance market: pure term plans and return of premium (ROP) plans. In pure-term plans, there is no maturity benefit if you survive the policy term. If the insured dies during the period, the nominee gets the whole sum promised. ROP, on the other hand, offers a premium return if the policyholder lives out the policy duration for an extra fee.
The public has expressed concern about purchasing a term plan since they do not provide any maturity benefits for the policyholder’s survival until the conclusion of the policy term. To address this hesitation, insurers are increasingly providing zero-cost term insurance as an alternative. It enables policyholders to end their plan at a predetermined life stage and receive their entire premium payment (excluding tax deductions) whenever they want for the duration of the insurer’s specified timeframe. Max Life, Bajaj Allianz, and HDFC Life Insurance are among the companies that have launched zero-cost term policies at reasonable prices.
What is zero-cost term insurance?
Zero-cost term insurance plans enable the policyholder to cancel the term plan at any time throughout their life. Within the time frame that the insurer specifies, this plan enables you to pay back all of your term insurance premiums whenever you like. However, this option is only accessible with long-term plans.
Let’s look at an example to learn how a zero-cost term plan works.
If Ram purchases a zero-cost term plan with a policy duration of 40 years, he has the option to withdraw in the 25th year of the plan. After leaving the plan, Ram will get a refund of any premiums paid.
There are two types of zero-cost term plans:
- Term plan with Return of Premium
- Term plan with Special Exit Value
a) Term Plan with Return of Premium (TROP)
duration plans that provide premium returns will refund all premiums paid by the policyholder throughout the policy’s duration. However, the return of the premium option is only valid if the policyholder lives the insurance term. If the policyholder dies before the policy term expires, the plan will function normally.
b) Term Plan with Special Exit Value
The term plan’s Special Exit Value option allows the policyholder to get all paid premiums back if they choose to surrender the insurance after:
at 65 years of age, after the 25th year of a policy with a total term of 40–44 years, or after the 30th year of a policy with a total term of more than 44 years.
Thus, a particular exit value allows you to prolong the term coverage or quit the plan at your leisure after finishing a minimum policy term.
What advantages do zero-cost term plans offer?
- The plan combines the benefits of the conventional term plan with those of the premium term plan.
- The return of premiums term plan is much more costly than the no-cost term plan.
- You may cancel zero-cost term plans at any time throughout your life. As a consequence, the insurer will not have to worry about losing the premiums they have already paid if they decide to quit the plan after they have retired or fulfilled all of their obligations.
Difference between Zero-Cost Term Insurance and TROP (Term Return Of Premiums)
ROP (return of premium) term insurance policies have premiums that are 70% to 80% higher than standard term plans. In addition, zero-cost term plans do not require any additional premiums. Both plans provide benefits, but there are some notable distinctions between them. In zero-cost term plans, term coverage terminates when the policyholder surrenders the plan and requests a refund of the premium paid. In the case of a premium plan, the term coverage remains even after the payment of the whole premium amount is refunded. Zero-cost term plans are more suited for salaried people, while ROP term plans are preferable for self-employed individuals.
| ZERO-COST TERM PLAN | RETURN OF PREMIUM PLANS |
| The Zero Cost Term Plan charges fewer premiums than its counterpart, making it easy for salaried personnel to meet their responsibilities and save as well. | The Return of Premium term plan charges a significantly high premium rate from the policyholder. |
| For zero-cost term plans, policyholders have the option to get their premiums back early or continue paying for the plan. | The return of the premium term plan’s coverage continues till the policy ends the term on the premiums paid, and only upon the end of the policy term, does the policyholder receive the premiums. |
| Zero-cost term life insurance is best suited for salaried employees. | Zero-cost term life insurance is best suited for self-employed people. |
Steps to Buy a Zero-Cost Term Plan
The process of purchasing a zero-cost term plan may be complex, and making the proper decisions is critical to maximising its advantages. But do not panic; we have you covered with these precise instructions.
- Choose the right insurer.
It is critical to choose insurance with a solid claim settlement ratio.
- Determine the sum assured.
Ensure that the money guaranteed is at least 10 times your yearly salary.
- Choose The Policy Term
Ideally, the insurance should last until you retire, but it’s a good idea to renew it for another 2-3 years after that.
- Make Premium Payments
Premium payments may be made via a variety of channels, including online, offline, and ECS. If you want to prolong your insurance term beyond 60, try the “pay-till-60” option.
Now that you know the difference between a zero-cost term plan and a term plan with a premium return, you can make an educated selection based on your protection needs. A term life insurance policy provides an important safety net for your family in the event of your untimely death, making it an essential part of your contingency plan.
Factors to Consider While Purchasing Zero-Cost Term Insurance
It is critical to compare several zero-term insurance policies at the time of buying. Here is a list of important points to consider while selecting zero-cost term plans.
Insurance Provider: Many term insurance firms in India provide zero-term insurance coverage to clients. As a result, evaluate several insurance companies based on their claim settlement ratios and choose the one with the highest.
Riders: These are extra benefits that a term insurance provider offers. Policyholders may purchase riders such as the premium waiver rider, the critical illness benefit rider, and others to supplement the coverage of their term insurance plan. However, the policyholder may be required to pay an extra premium to incorporate riders into their basic term life insurance policy.
Sum Assured: The total guaranteed amount may be limited under zero-cost term insurance programmes. As a result, it is essential to calculate the needed amount guaranteed using your financial liabilities and other day-to-day costs. Select an amount guaranteed that offers enough coverage to meet your loved one’s future financial demands.
Premium: Policyholders of the zero-cost term plan may be required to pay service tax, education cess, and other fees in addition to the premium. As a result, it is critical to thoroughly study the policy document and carefully review all of the terms and conditions. Additionally, look at the premium payment methods offered by a term insurance firm.
Policy tenure is the term during which an insurance company is obligated to provide life coverage to the policyholder. As a result, it is essential to choose a policy duration that is appropriate for your financial situation. Additionally, it is advised that you choose a term plan with a lifetime renewal option.
Documents Required for Zero-Cost Term Plan
Whether you are exploring this insurance option for the first time or wanting to renew an existing policy, knowing the paperwork requirements is critical to obtaining the financial protection you need.
| Important Documents | |
| Identity Proof | To prove your identification, you must present credentials such as a passport, Aadhar card, voter ID, or driver’s licence. This guarantees that the insurance is given to the right person. |
| Address Proof | Insurance companies demand evidence of residency, which might be a utility bill, a rent agreement, or other government-issued document bearing your address. |
| Age Proof | Accurate information regarding your age is critical in deciding on premium-free coverage. Birth certificates, passports, and school leaving certificates are frequently recognised. |
| Income Proof | Although you will not be paying premiums, insurers may still need evidence of income to analyse your financial status. Salary stubs, income tax returns, and bank statements are all acceptable documents for this purpose. |
| Medical Reports | Insurance companies may request medical data in order to assess your health and the risk of insuring you. A medical checkup, including basic tests and a health questionnaire, may be necessary. |
| Photographs | Recent passport-sized pictures are often requested for insurance paperwork. |
| Nominee Details | In the event of your death, you must provide the name and contact information of the person who would receive insurance benefits. Ensure that their information is correct. |
| KYC (Know Your Customer) Documents | You may be required to complete the KYC procedure by supplying papers such as a PAN (Permanent Account Number), Aadhar card, or passport. |
| Declaration Form | You will be required to complete a declaration form to offer extra information about your health, lifestyle, and habits. |
| Bank Account Details | The insurer may request your bank account details to simplify claim payouts. |
| Income Tax Returns | You may be required to produce your income tax returns to prove your income. |
Limitations of Zero-Cost Term Plan
While a zero-cost term plan may seem to be the perfect answer for individuals on a low budget, it is important to understand that such plans have restrictions and downsides. Here are some of the significant drawbacks you should consider:
Limited Coverage Amount
Zero-cost term insurance programmes often provide quite modest coverage levels. This implies that if you want a greater degree of financial security for your family, you may need to get a separate insurance policy, which might incur extra expenditures.
Stringent Surrender Regulations
Zero-cost term plans are subject to strict surrender requirements, which allow policyholders to surrender the policy only within a certain duration. The surrender value of the policy may also be lower when compared to traditional insurance policies.
No Investment Component
Term plans with zero expenses do not have an investment component and do not generate returns or profits. As a result, policyholders should not expect to receive returns on their premium payments.
Limited investment opportunity
Zero-cost term plans do not provide a chance to increase your wealth through investing. Traditional life insurance plans, such as whole life or universal life insurance, enable you to accumulate cash value over time, which may be used to achieve a variety of financial objectives.
Premium Payment Time Limit
In a zero-cost-term plan, the premium payment term is often limited to a few years, requiring the policyholder to make the whole premium payment in advance. This method may pose difficulties for those who want to stretch their premium payments across numerous installments.
Expiration of Premium Refund
Even if you survive the insurance term and obtain a premium refund, the money may lose buying power owing to inflation. It may not be sufficient to meet your financial requirements at that time.
Limited Conversion Options
Zero-cost term plans may not provide simple conversion choices to permanent insurance, which may be required if your circumstances change and you want more comprehensive coverage.
a real-life example of zero-cost Term Insurance
Consider Rajesh, a 40-year-old guy living with his wife and 10-year-old kid. He obtained a housing loan of Rs. 50 lakh to purchase a decent home for his family. Rajesh purchased a 30-year term insurance policy to safeguard his family’s financial security in the event of his death. The plan’s promised amount was Rs. 70 lakh. If he dies within the insurance period, his family would get Rs. 70 lakhs to repay the debt and satisfy their financial obligations. After 15 years, Rajesh’s kid began to earn money and became financially independent. Rajesh’s other assets began to perform well, and he used them to pay off the house debt. Rajesh understood that he no longer needed the term plan. He had chosen a zero-cost-term plan and obtained a return for the money paid.