Zero cost term insurance

In case you haven’t saved enough and don’t have life insurance cover then opting for a zero cost term insurance is a good option. You can also opt for a zero cost term plan if you have a strong financial plan for the future. For instance, if you are in your 60s and have met all your financial obligations then discontinuing the plan by opting for a zero cost term plan would be a great option. On the other hand, it is important to note that under return of premium insurance, you don’t have the option to exit the policy after a few years and have to continue till the end of the term to get the premiums back.

Zero-cost term plans are designed to provide numerous benefits to policyholders. Some of the reasons why you should buy these plans have been explained below:

• High Coverage: A zero-cost term insurance plan provides high coverage to policyholders. With this high sum assured, you can ensure that your family is protected against financial contingencies that may arise in the future.
• Tax Benefits: The policyholders of zero-cost term plans can avail of tax benefits on a premium paid under Section 80C of the Income Tax Act, 1961. Additionally, a death benefit paid to the nominee is also tax-deductible under Section 10(10D) of the Income Tax Act, 1961.
• Lifelong Coverage: You can financially secure your retirement by renewing your zero-cost term plans for a lifetime. However, if you want to enjoy lifetime financial protection, you may have to pay a premium for a long-time.
• Return of Premium Benefit: Generally, term insurance plans do not return premiums paid by the policyholder in case of the termination of the policy. But, zero-cost term insurance plans provide this benefit. In simple terms, if the insured cancels their plan within the policy tenure, he or she can claim the return of premiums paid until that date.

Difference Between Zero Cost Term Insurance & Return of Premium Plans

Listed below are the differences between zero cost term insurance and return of premium plans that you should know about:

How Does Zero Cost Term Insurance Work?

Zero-cost term insurance is a unique financial tool that provides a cost-effective solution for individuals seeking life insurance coverage. Unlike traditional insurance policies, where premiums are paid regularly, zero-cost term insurance operates on a different principle. In this model, policyholders can pay the premium for a specific period of time and then exit the plan to get back the premium that is paid. However, it's crucial for policyholders to carefully assess the terms and conditions of zero-cost term insurance to understand the potential risks and benefits.

Example of Zero Cost Term Insurance

Let’s understand zero cost term insurance in a better way with the following example:

Suppose Aakash, aged 40, lives with his wife and 11-year-old son. Recently, he lent a housing loan of Rs. 50 lakhs and simultaneously, bought a zero-cost term insurance plan with a policy tenure of 30 years. This is to ensure that his family is financially protected in case he dies. The sum assured for his 30 years term insurance plans was Rs. 70 lakh. If Aakash dies during the policy tenure, his nominees will receive Rs. 70 lakh to repay the loan amount and meet other financial needs. The nominee can either choose to get a death benefit in a lump sum or in regular monthly installments.

After 15 years, the son of Aakash started earning and paid the housing loan. Once he became financially independent, he realized that he did not require term insurance coverage anymore. As he was covered under a zero-cost term insurance plan, he received a return of all the premiums he had paid.

It is crucial to compare different zero-term insurance plans at the time of purchase. Here’s a list of some factors that you need to consider while purchasing zero-cost term plans.

• Insurance Provider: Many term insurance companies in India provide zero-term insurance coverage for the policyholders. Therefore, compare different insurance companies on the basis of claim settlement ratio and select the one that has the highest ratio.
• Riders: Riders are additional benefits provided by a term insurance company. The policyholders can buy riders like the premium of waiver rider, critical illness benefit rider, and others to enhance the coverage of their term insurance plan. However, the policyholder may have to pay an additional premium to include riders in their base term life insurance policy.
• Sum Assured: Zero-cost term insurance plans may limit the sum assured amount. Therefore, it is important to determine the required sum assured based on your financial liabilities and other day-to-day expenses. Select the sum assured that provides enough coverage that can suffice the future financial needs of your loved ones.
• Premium: The policyholders of the zero-cost term plan may have to pay service tax, education cess, and other charges in addition to a premium. Therefore, it is substantially important to read the policy document and check all the terms and conditions carefully. Additionally, check the premium payment options provided by a term insurance company.
• Policy Tenure: It is a period for which an insurance company is entitled to provide life coverage to the policyholder. Therefore, it is important to select the policy tenure that aligns with your financial needs. Additionally, it is recommended that you purchase a term plan that provides a lifetime renewal option.

In conclusion, zero-cost term insurance plans are term plans that provide a return of premium benefits to the policyholders. A premium paid for zero-cost term plans is similar to a premium paid for regular term insurance plans.