TeamAckoNov 7, 2023
In India, life insurance is essential to financial planning, providing peace of mind to individuals and their families. While term insurance policies offer a cost-effective way to secure your family's future, the premium payments can add up over time. Fortunately, some insurance providers offer zero cost term insurance in India, allowing policyholders to enjoy the benefits of a term insurance policy without the financial burden of premium payments. In this article, we'll look closer at zero cost term insurance, its benefits, limitations, and how to buy the plan.
A Zero cost term plan provides the buyer with the best of both worlds- they enjoy the security benefit of any basic term plan while offering to pay back all the premiums like a Return of Premium Term Plan. Simply put, zero cost term plan allows the policyholder to discontinue paying the premium on their term plan at a chosen point. The premium for this plan is almost the same as the regular term plan.
Here are the features of a Zero cost Term Plan.
Zero Cost Term Plans offer coverage for a specific period of time.
It covers an individual until 99 years of age.
The benefits of both, regular Term plan and Return of Premium plan can be availed with this plan.
The plan is more economical when compared to the Return of Premium plans without much disadvantage.
Zero cost Term Plans are mainly introduced to people who want to get a return on their premiums made.
Policyholders can discontinue paying premiums at various points of their life, they don’t have to worry about losing any premiums they already paid.
The premium amount paid is tax deductible up to Rs. 1.5 lakhs every year under the old regime.
Zero cost term plans offer long-term coverage if the policyholder wishes to fulfil their responsibility. However, they need to pay premiums for a long time.
Ideal for salaried personals to fulfil their responsibilities and then can stop paying their premiums.
Consider Gautham, a 40-year-old man who lives with his wife and 10-year-old son. He borrowed a housing loan of Rs. 50 Lakhs to buy a comfortable house for his family. To ensure that his family is financially secure in case he passes away, Gautham bought a Term Insurance plan with a policy term of 30 years.The sum assured of the plan was Rs. 70 Lakhs. If he dies during the policy term, his family will receive Rs. 70 Lakhs to repay the loan and meet their financial needs.After 15 years, Gautham's son started earning and became financially independent. Also, Gautham's other investments started doing well, and he used them to pay off the housing loan. At this point, Gautham realised that he did not need the Term plan anymore. He had opted for a Zero cost Term plan, and received a refund on the premium paid.
Here are the general steps to buy the Zero cost Term Plan in India.
Step 1: Assess your need
Step 2: Select a suitable insurance company
Step 3: Choose the sum assured and the policy term
Step 4: Analyse the premium amount and other terms and conditions of the plan
Step 5: Apply for the policyThe insurance company will review the application and issue the final policy as soon as possible.
You may need the following documents to buy a Term plan,
Residence proof (Aadhaar Card,etc)
Medical reports(if the policyholder is above 45 years)
Please note: The above list of documents is indicative and may change as per the terms of the insurance company.
Here are the benefits of the plan.
A Zero Cost Term Plan offers high life insurance coverage at zero cost. For instance, the sum assured in many cases is as high as Rs. one crore.
The premium for a Zero Cost Term Plan is very affordable. The insurer charges a premium only for the first few years of the policy term, which is refunded at the end of the policy term if the policyholder survives the policy term.
Under Section 80C of the Income Tax Act, 1961, premiums paid towards a Zero Cost Term Plan are eligible for tax benefits. The death benefit received by the nominee is also tax-free under Section 10(10D) of the Income Tax Act, 1961 under the old tax regime.
A Zero Cost Term Plan offers flexibility in terms of policy term and sum assured. The policyholder can choose the policy term and sum assured as per their requirement.
Here are some limitations of the plan.
Zero cost Term plans offer coverage for a limited period of time, and once the policy term expires, the policyholder will not receive any benefit. Moreover, the sum assured provided by these plans is also limited and may not be sufficient to cover the family's financial needs in case of the policyholder's untimely demise.
Unlike traditional insurance policies, Zero cost Term plans do not offer any maturity benefit. This means that if the policyholder survives the policy term, he/she will not receive any benefit.
Zero cost Term plans offer limited flexibility regarding policy duration, premium payment frequency, and coverage amount. The policyholder cannot change the policy once it is purchased.
The premium payment term in a Zero cost Term plan is usually limited to a few years, and the policyholder is required to pay the entire premium upfront. This may not be feasible for many individuals who may prefer to pay their premiums in instalments.
Zero cost Term plans come with strict surrender policies, and the policyholder can only surrender the policy during a specific time window. The policy's surrender value may also be lower than other traditional insurance plans.
Zero cost Term plans do not have any investment component and do not offer returns or profits. This means the policyholder cannot expect any returns on the premium paid.
Here are some key differences between the two plans.
ZERO COST TERM PLAN
RETURN OF PREMIUM PLANS
Zero Cost Term Plan charges less premiums than its counterpart, making it easy for salaried personnel to meet their responsibilities and save as well.
Return of Premium term plan charges a significantly high premium rate from the policyholder.
For Zero Cost term plans, policyholders have the option to get their premiums back early, or continue paying for the plan.
Return of Premium term plan’s coverage continues till the policy end term on the premiums paid and only upon the end of the policy term, does the policyholder receive the premiums.
Zero cost Term life insurance is best suited for salaried employees.
Zero cost Term life insurance is best suited for the self-employed persons.
Here are some things to consider before buying the plan.
Before purchasing a Zero cost Term plan, it is important to understand the policy's terms and conditions. These policies are designed to provide coverage for a specific period and may not have any survival benefits. It is important to read the policy document carefully, understand the coverage and benefits offered, and evaluate if it meets your insurance needs.
Zero cost term plans may limit the coverage amount that can be availed. Determining the required coverage amount based on your financial obligations and liabilities, including loans, mortgages, and other expenses, is important. Ensure that the coverage amount offered by the policy is sufficient to meet your family's financial needs in case of your untimely demise.
While the policy may be free, Zero cost Term plans may have other charges such as service tax, education cess, etc. It is important to understand the charges associated with the policy and ensure that you are comfortable with them. Additionally, ensure that the premium payment terms and frequency are convenient and feasible.
The policy term is the period for which the policy provides coverage. Selecting a policy term that aligns with your financial goals and obligations is important. Opting for a policy term that extends until your retirement age or beyond is recommended.
Riders are additional benefits that can be added to the policy at an extra cost. These benefits may include Accidental Death Benefits, Critical Illness Cover, etc. Evaluate if these riders align with your insurance needs and opt for them accordingly.
Lastly, selecting an insurance company with a good reputation, track record, and customer service is important. Research, read reviews, and evaluate the insurance company's financial stability before purchasing a policy.
Yes, the Zero Cost Term Plan allows you to exit before the full term is over.
Zero Cost Term Plan usually has a longer policy term.
The premium for any term plan is affected by the policyholder’s age, gender, medical history, family history, lifestyle, and type of policy.
Disclaimer: The content on this page is generic and shared only for informational and explanatory purposes. It is based on industry experience and several secondary sources on the internet, and is subject to changes.
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