Zero Cost Term Insurance Plan- A Detailed Guide

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Zero Cost Term Insurance – Introduction

If you are not sure about your retirement or when you want to get retired, the zero cost term insurance plan is the best term life insurance for you. How? Let’s find out in this post.

When it comes to life insurance policies, there are two kinds of plans available in the market including the  Pure Term plans and the ROP or Return of Premium plans.  The first type of term plan does not offer any maturity benefit if the policyholder survives or outlives the duration of the plan. However, it allows a good lump sum amount to the beneficiary if the insured dies within the policy period. On the other hand, in ROP the insured gets a return of premium if the person survives the policy term. However, this plan levies some additional cost to the policyholder.

Now, despite the fact that term plans allow lump sum benefits to nominees, people have shown certain apprehension towards these plans because they do not offer any maturity benefits. Thus, to allow people more options and to soothe their apprehension, insurance companies have come up with a new kind of alternative policy called the Zero Cost Term Insurance plans.

So, this latest variant in term insurance, the Zero Cost Term Insurance, is a plan that comes with the easy option of early termination while giving back the entire premium amount being paid (excluding the taxable amount) by the insured at a specific time period prescribed by the insurer.

Many reputed insurers like Max Life, HDFC Life and Bajaj Allianz have initiated offering these zero cost term insurance plans to their customers at reasonable costs.

Let us understand this new concept in detail.

What does Zero Cost Term Insurance Mean?

As already discussed, zero cost term plan is a long term insurance policy that allows policyholders to discontinue their term insurance policies early on in the policy duration. Hence, here the policyholder can get their premiums back at a particular time period during the policy duration that is pre-decided by the insurer.

For instance,  if you buy a zero cost term insurance plan for 40 years and the policy allows you the option to discontinue the plan on the 25th year of the policy. So, in that case you can opt out of the plan in the 25th year and you will get back all the premiums being paid so far.

Reasons to buy Zero Cost Term Insurance Plan

There are several reasons to buy zero cost term insurance plans as mentioned below:

• The policyholder can stop paying premiums and discontinue the plan at specific period if they want to.
• These plans are reasonable as compared to TROP or Term Return of Premium Plans.
• Here, the premiums are returned even if the policyholder terminates the policy early on.
• These plans suit those who are looking for long term cover but are not sure about their retirement age.
• Zero term insurances are available with life cover of 35-40 years only.

Also Know: Understanding The Values Of Term Life Insurance

Is there any Difference between Zero Cost Term Insurance and TROP?

Though both the zero cost and TROPs have their own benefits, there are few differences between them as mentioned below:

• Zero cost term insurance plans allow the policyholder to surrender the plan at a specific time of life and can get back the premiums already paid. In case of return of premium plans, the coverage of the policy continues even when the payment is refunded back
• Zero cost term insurance plans suits people who earn monthly salary, whereas ROP suits the people who are self employed
• The ROP or return of premium plans are costly than the Zero Cost Plans
• The zero cost term insurance plans do not charge any extra premiums.

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Conclusion

Generally in life term insurance, individuals lose all benefits if they discontinue the policy even after paying the premiums for a long duration. This makes it a situation of total loss for the insured. However, with the zero cost term plans this issue is not there. Here, the policyholder can terminate the plan at particular life stages that is predetermined by the insurer at the start of the policy. And the best thing is the insured can get back the entire premium amount being paid till that time except the deduction on income tax.  However, the exit time of the policy when the insured can leave the plan is decided by the insurer.

Further, it is also important to note that long term continuity of the zero cost plan is important before the policyholder can exit the plan.  Some insurance companies allow the insured to exit in the 25th year of the plan or when the person reaches 65 years (whichever is early) if the term of the plan is 40 years and beyond. Other insurers may allow the insured to exit the plan at 60 years or on the 30th year of the policy whichever is early. In fact the exit policy and the conditions of exit differs from one insurer to another.

So, it is advised to read the policy conditions and compare the zero cost policies available from different insurers before finalizing on the plan that you would like to buy.

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