The most popular type of life insurance is vanilla term life insurance, which pays the sum assured to the nominee or family members in the event of the policyholder’s unfortunate death. While it is the most affordable life insurance product on the market, there is still a section of people who wonder what if nothing happens to the policyholder. To cater to this particular segment of consumers, most insurance companies are coming up with a zero cost term insurance plan with the option of returning all premiums (minus GST) at the age of 65 or the 25th policy year, whichever comes first, if the policyholder no longer wishes to continue with the term insurance.
Features of this plan
A zero cost term insurance plan includes an exit option unlike regular term insurance plans. This allows policyholders to terminate the plan at a given age or after paying premiums on a regular basis for a set number of years.
This policy is best suited for consumers over the age of 35, and its goal is to provide long-term financial security to their families.
Typically, in a zero cost term insurance arrangement, the policyholder will receive a refund of all previous premiums paid, except GST.
A zero cost term insurance plan provides significant life insurance coverage at no additional expense. For example, the sum assured could be as much as Rs 1 crore or more. Typically, insurance companies (insurers) charge premiums only during the first years of the policy term. If a policyholder lives the policy period, the premiums are reimbursed.
Customers under the age of 45 are eligible for these programs. The policy term for such a plan, however, must be 40 years or more.
Additionally, premiums paid for zero cost term insurance plans are eligible for deductions under Section 80C of the Income-Tax Act, 1961. In addition, the nominee’s death benefit is tax-free under Section 10(10D) of the Income Tax Act of 1961.
However, before investing in a zero cost term insurance plan, it is vital to understand that such plans only provide coverage for a limited time, and the policyholder will not receive any benefits once the policy term expires.
Furthermore, zero cost term insurance plans often feature no investment component and provide no returns or profits. A policyholder cannot expect to receive any returns on their premium payments.
Furthermore, a zero cost term insurance plan does not provide any maturity benefits. It means that if the policyholder lives the policy period, they will not receive any benefits.
Zero cost term insurance often features a limited premium payment term, requiring consumers to pay the entire premium up front or over a short period of time. It is unlikely to suit the budgetary needs of individuals who prefer to spread premium payments over a longer period of time or wish to pay in installments.
Furthermore, such plans provide limited flexibility in terms of policy tenure, premium payment frequency, and coverage amount.
When a policyholder acquires such a plan, the policy terms are normally fixed and cannot be altered. This means that no customization is available with such insurance plans.
Will it make sense if I buy Term Insurance with the return of a premium plan?
‘Return of Premium’ term insurance policies have premiums that are 70 to 80% higher than regular term insurance plans. However, unlike ‘Return of Premium’ term insurance plans, Zero Cost Term Plans do not require any further payments. Zero Cost Term Plans terminate the insurance coverage as soon as the policyholder surrenders the policy and requests a return of premiums, Return of Premium Term Plans continue the insurance coverage even after all premiums have been returned. That is why Return of Premiums insurance have higher premiums. Zero-cost term plans are appropriate for the salaried class, whereas return of premium term plans are more suited for the self-employed category.
How to Buy Zero-Cost Term Insurance?
Step 1: Determine how much insurance coverage your family will require if something happens to you. Consider loans, loan, and everyday expenses while determining the appropriate coverage amount.
Step 2: Look for a reputable insurance company that offers Zero Cost Term Plans. While looking, consider the strong reputation, financial stability, and a track record of providing good customer service.
Step 3: Once you’ve decided on an insurance company, determine how much coverage you want and how long you want the policy to provide the coverage for. Make sure the coverage amount meets your family’s financial demands.
Step 4: Carefully review the insurance costs and terms and conditions. Pay attention to any additional expenses, such as taxes, and ensure that they are within your budget.
Step 5: Submit an application with the insurance company. Make sure you give honest and factual information. The insurance company will analyse your application and, if everything checks out, issue you the final coverage.
Documents Required for Zero-Cost Term Insurance
To acquire a zero cost term Plan, you will require the following documents:
Identity Proof: This could include documents such as your Aadhaar Card, Passport, Voter ID, or any other government-issued documentation that proves your identity.
Address Proof: You can use your Aadhaar Card, utility bills, or rental agreement to prove your residence address.
Income Proof: To verify your financial condition, you may be asked to present income-related papers such as salary slips, tax returns, or bank statements.
Medical Reports: If the policyholder is 45 years or older, some insurance firms may request medical reports or health declarations to examine your health status.
Conclusion:
While most salaried individuals are ready to get long-term coverage, there are some who are dissatisfied with the simple term plan as it provides no benefits if the policyholder outlives the policy term. With zero-cost term insurance, you can inform the insurer to shut down your plan when you don’t have liabilities or have reached around retirement time, and the insurer will return all your premiums paid.
