Zero Cost Term Plan: What Is It And Should You Buy It?

Term Insurance is the purest and most affordable form of life insurance that provides coverage for a specific period, called ‘term’. In case of the policyholder’s unfortunate demise, it provides financial protection to their family as per the policy agreement. While calculating the required life insurance coverage for an individual, several factors are considered, such as the individual’s age, annual income, total debt, geographical location, gender, current savings, investments, etc. These factors help in understanding your current and future financial objectives, based on which your sum assured is calculated.

Earlier, the insurers offered only a basic Term Plan that provides a sum assured to the nominee in case of the demise of the policyholder. If the policyholder survives the insurance term, the policyholder or nominee does not receive any returns for the premiums paid. To address this issue, many insurers started offering Return of Premium Plans that offered the paid premiums back upon survival but charge an almost double premium compared to regular Term Plans. Hence, it does not make sense to pay almost twice the premium to get it back after the end of the term.

Recently insurers have started offering Zero Cost Term Plans that offer the benefits of both these plans, wherein you get the paid premium back upon survival without paying the huge premium. Choosing between different available Term Plans could be overwhelming, and many individuals get perplexed about whether they should choose a vanilla plan, a Return of Premium or a Zero Cost Term Plan. This article explains what a Zero Cost Term Plan is, how it is different from a regular and Return of Premium Term Plan, and whether you should buy it.

What is a Zero Cost Term Plan?

If you are planning to buy term life insurance, you will come across three types of Term Plans – Term Plan (regular Term Plan), Return of Premium Term Plan, and Zero Cost Term Plan. A regular Term Plan offers a death benefit in case of the sudden demise of the policyholder during the policy term. However, unlike traditional life insurance, it does not provide any maturity benefit in case the policyholder survives the policy term. The premium is substantially lower compared to traditional plans, and it enables you to get the maximum sum assured at an affordable premium.

The Return of Premium Term Plans also offers the same death benefit in case of the demise of the policyholder during the policy term. In case the policyholder survives the policy term, he/she receives the entire premium minus GST back. However, the premiums of the Return of Premium Term Plans are about twice the premiums of the regular Term Plans. Besides, you cannot exit the plan before the policy term. If you stop paying the premiums or cancel the plan before the end of the term, the insurer is not liable to repay you the paid premiums.

The newly introduced Zero Cost Term Plans offer the best of both worlds. These plans offer the paid premiums to the insured upon the survival of the policy term and charge much lower premiums than Return of Premium Plans. While the Return of Premium Term Plans charge 70% to 100% more than the regular Term Plan premiums, Zero Cost Term Plan premiums are 40% to 50% lower compared to the Return of Premium Term Plan premiums. Furthermore, the policyholder can exit the policy before the policy term ends and get the entire paid premiums back, depending upon the terms and conditions of the insurer.

Many individuals, especially in India, prefer to be optimistic about their health and do not prefer to think about the uncertainties in life. This is why they do not buy term insurance, as the policy does not offer any maturity benefit. They believe that nothing unfortunate can happen and since there is no survival benefit, paying the premiums is simply a waste of money. Hence, to make these individuals cover their lives with a Term Plan, the Zero Cost Term Plan is an affordable solution. While an insured has to pay a slightly higher premium, he/she gets relief that their life is insured for a specific term, and they will receive the paid premiums back upon survival.

What are the benefits of buying a Zero Cost Term Plan?

• The plan offers the benefits of both; the regular Term Plan and the Return of Premium Term Plan.
• The cost of the Zero Cost Term Plan is considerably lower than the cost of the Return of Premiums Term Plan.
• Zero Cost Term Plans allow you to exit from the plan at different life stages. So, the insurer can choose to exit the plan when he/she no longer has any liabilities or after retirement, without having to worry about not getting the paid premiums back.

What are the limitations of a Zero Cost Term Plan?

• Since the plan is newly introduced, only a few insurers are currently offering it in India.
• The plan is offered only to individuals below the age of 45.
• While the plan says it is a ‘zero cost’ plan, there could be administrative charges and taxes that are non-refundable. Hence, it is advisable to check the terms and conditions before buying any insurance policy.

Should you buy a Zero Cost Term Plan?

The newly introduced Zero Cost Term Plan is an affordable alternative to the regular Term Plan and Return of Premium Term Plan. In case of an unfortunate demise of the policyholder, the nominee receives the sum assured and in case of a survival, the policyholder gets the entire premium amount minus non-refundable charges and taxes back. Moreover, similar to a regular Term Plan, if the policyholder wants to exit the plan, he/she can inform the insurer that they want to exit the plan and get the paid premiums minus non-refundable charges and taxes back. If you are considering buying a term, it is advisable to check the insurers offering this plan, and compare it with a regular Term Plan in terms of premium, coverage, customer service, ease to purchase and renew, claim settlement ratio, claim settlement process, etc. to ensure you make an informed decision. Before buying the Zero Cost Term Plan, make sure you read the fine print of the policy in order to avoid any unpleasant surprises in the future.