Zero Cost Term Insurance Plan

Term insurance is the most common type of life insurance product that provides financial protection to the family of the policyholder in case of an unfortunate event. What if in case, you pay a premium amount for a term insurance plan for a long period, let's say for 35 years, and then decide to discontinue the plan because you don't feel a need for it anymore or you do not have any liabilities? 

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In regular term insurance plans, you don’t get back a premium amount paid on maturity as a survival benefit, but a new variant of term plans, called Zero Cost Term Insurance, has been introduced by some of the insurers where all the premium amounts paid are returned to the policyholder at a certain age decided by the Insurer if the customer wants. Let’s understand ‘What is Zero Cost Term Insurance’ in detail:

What is a Zero Cost Term Insurance?

There were 2 types of term insurance plans available in the insurance industry so far. One is a regular term plan also referred to as “term plan” where if an individual dies during the policy tenure, his/her nominee will get the cover amount (Sum assured). And, if they survive the policy term, no maturity amount is paid. The second variant of the term plan is Return of Premium (ROP) in which the policyholder gets back their premium amount minus GST in case of survival till the end of policy term. However, Return of Premium(ROP) plans are about twice the cost of Regular term plans.

While term plans are the cheapest and best form of Life Insurance across the world, it has been seen that there are still people who understand that term insurance is beneficial to them but, end up not buying one due to the sense of not getting back anything in case of Survival or feeling that the Return of Premium(ROP) plans are costly. At the same time, it has been seen that most of the customers were preferring to take a cover for longer policy term/age due to inconclusiveness on retirement age, financial dependency of family members post 60/65years of age. To cater to this segment, insurers are now offering a new type of term insurance plans which is getting known across in Media as Zero Cost Term Insurance Plan.

"This plan comes at the same premium of the regular term plan. It has a special exit feature where you can exit at a specific life stage and get all your premium back whenever you want during the time period provided by the insurer. So, you get the flexibility of getting return of your paid amount at the same cost which otherwise would have cost you twice."

Zero Cost term Insurance Zero Cost term Insurance

Difference Between Zero Cost Term Plan and Return of Premium Plan

In both ROP and Zero Cost term plan, you get back/have an option to get back your total amount of premium paid at different stages. So, now let’s understand the difference between these two plan variants:

Zero Cost Term Plan Return of Premium Plan
Zero cost term plans are less expensive than ROP Return of Premium (ROP) term insurance plans charges a 70-80% higher amount of premium than a regular term insurance plan
You have an option to choose if you wish to exit and get the premiums back early or to continue the plan as it is till the end. Your cover will continue till the end of policy term on premiums being paid and the return of premiums will happen at the end of policy term only. You can’t exit in between and get all the premiums back.
Suitable for salaried class individuals Suitable for self-employed individuals
As discussed above, zero cost term insurance plans are 49% cheaper than Return of Premium Plans. Let’s understand how:
Monthly Premium paid Rs. 1009/month + GST
Total Amount of premium paid Rs. 2,90,592 + GST, till 55 years of age
Monthly Premium paid Rs. 1995/month + GST
Total Amount of premium paid Rs. 5,74,560 + GST, till 60 years of age
With Zero Cost Term Plans, you save Rs. 2,83,968

Should You Buy a Zero Cost Term Insurance Plan or Return of Premium Plan?

Financial advisors always suggest opting for the plain-vanilla term plan. You can buy a term insurance plan with life cover online having low-cost till 70 years of age to meet your insurance needs. Let’s say, at 55 years you have met all your financial responsibilities or have accumulated sufficient funds to meet them, then you can think of discontinuing the term insurance plan by opting for Zero Cost term insurance plan.

What are the Reasons to Buy Zero Cost Term Insurance Plans?

Here are a few reasons you should buy zero cost term plan:

  • These plans are more affordable for customers in comparison to Return of Premium (ROP) plans. Generally, Zero Cost plans are about 50% cheaper than ROP plans.

  • These plans are best suited for customers who are not sure of their retirement age or dependency of family members on their income at older age.

Zero Cost term Insurance Zero Cost term Insurance

Which Companies Offer Zero Cost Term Insurance Plans?

Max Life, Bajaj Allianz and HDFC Life Insurance are among those that have introduced such plans. Let’s discuss the details:

Zero Cost Term Plans Entry Age Maturity Age Policy Term
Max Life Smart Secure Plus 18 years to 60 years 85 years 10 years to 67 years
Bajaj Allianz e-Touch Plan 18 years to 45 years 85 years 10 years to 67 years
HDFC Click 2 Protect Super 18 years to 65 years 85 years 5 years to 85 minus entry age

Sample Premium Comparison of Term Insurance Plan Variants of Max Life and Bajaj Allianz

The table illustrates the term insurance premiums for a 30 years old male who is a non-smoker and a salaried person who has availed a life cover of Rs.1 Crore.

Zero Cost Term Insurance Plans Cover up to Premiu/month (without GST) Withdrawal after age Withdrawal premium (without GST) Premium/month with ROP (without GST) Total Premium with ROP (without GST)
Max Life Insurance 70 years 1009 55 290592 1995 574560
Bajaj Allianz Life Insurance 68 years 804 60 279792 1508 524784

+Standard Terms and Conditions apply

When people reach a specific age, they would have generally accumulated different assets and may not feel the need for term insurance plans. As discussed, various insurers have addressed this need by allowing them to exit the plan at a pre-specified age and get their total premium paid back. It is advisable to buy a term plan after thorough research, comparison and as per your suitability.

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