Zero-Cost Term Plans: Everything You Need to Know
Are you confident about your family’s financial future? Can they weather any storm in the case of your unfortunate demise? Can they meet their financial goals, such as higher education or weddings? Can they take care of lifestyle and monthly costs with ease? Can they repay loans or liabilities left behind by you? If you choose term life insurance, the answer can be yes to all these questions. This is a basic necessity for every individual and household today.
Term insurance ensures pure life coverage where the insurance company pays a fixed sum assured to your nominee in case of your death within the policy tenure in return for a specific premium amount. Your premium is also eligible for tax deductions under Section 80C up to Rs. 1.5 lakh. You can also calculate the same using a term insurance premium calculator in order to plan your finances before buying your policy. These plans do not have maturity benefits, although some plans enable a return of the premiums you pay. Zero-cost term life insurance plans have recently generated a sizeable buzz in the market. Here’s taking a closer look at everything you need to know about these plans.
Zero Cost Term Insurance- What Does It Mean?
Zero-cost term life insurance offers coverage without any cost to the policyholder. This means that while you pay the premium for the policy in question and may exit from the same at any juncture, you may get back the premiums you have paid until that particular date. This insurance plan has this exclusive exit feature, meaning that you can leave the policy anytime you wish and get your premiums back. The premium amounts are often the same as term plans with the return of premium features or their regular counterparts.
If the policyholder passes away within the policy period, the beneficiary will get the sum assured fixed in the policy document. However, if the policyholder survives the policy tenure, then the premiums will be paid back accordingly. There are two kinds of plans available in this category:
- Term Plan with Return of Premium (TROP) – These plans pay back the premiums the policyholder paid throughout the policy period. Yet, the option only stays active if the policyholder survives this duration. The plan functions like a regular term plan if the policyholder passes away before the conclusion of the tenure, i.e. the payout of the sum assured to the nominees of the policyholder. At the same time, the premiums are returned only after deducting applicable charges.
- Term Plan with Special Exit Value- As per this option, policyholders get their paid premiums returned in case they surrender the policy after the 25th policy year with a tenure of 40-44 years or turning 65 years of age. It is also possible after the 30th year for a tenure of 44 years in total. There is always an option to exit the plan or continue coverage.
Some Other Aspects Of Zero-Cost Term Insurance Policies
Here are a few additional aspects of zero-cost term insurance policies that you should know more about:
- Zero-cost term plans offer life coverage for a specific duration
- They offer policyholders an affordable financial safety net if they survive the policy period
- They offer extra funds at the time of retirement, with the premiums being returned upon the policyholder outliving the policy period
- It may be perceived as an investment for the future, especially for policyholders who buy term life insurance early
- Many zero-cost term plans offer exit options at a certain age while getting back all premiums paid minus the GST amounts
- Policyholders who have already covered their liabilities near retirement and no longer desire term insurance may avail of this option
- Continuity is a must for a specific duration before the exit choice is offered to the policyholder
- Return of premium policies may have higher premiums than regular term insurance policies. Zero-cost term plans are usually cheaper than the return of premium policies. However, they are still marginally costlier than regular-term plans.
What does Zero Cost Entail, and Who is It Suitable for?
Zero-cost term insurance plans are suitable for people who purchase insurance coverage with a return in mind. This is for those who purchase insurance, fearing that their investment will go down the drain (the premium payments) if nothing untoward happens in the policy period. This is all the more evident for those who have started their insurance plans at an early age. Therefore, when the exit option comes into play, it becomes a zero-cost plan for these customers. These are ideally those who have already created sufficient assets and achieved life objectives while in their 50s and may not require life insurance coverage in the future.
These policies also encourage customers who would otherwise shy away from term insurance due to the absence of returns on surviving the policy period. Of course, ultimately, there is no zero cost since every insurance plan has a certain cost attached to it. In this case, customers will miss out on the interest they could have earned over a couple of decades or more on the amount returned to them (premium payments made). This is the cost linked to these term policies. Whether it is a regular variant or a zero-cost one, it is essential to get term insurance to safeguard your family’s financial future.