Are you looking for affordable life insurance coverage that won’t break the bank? The zero-cost term insurance comes as a lifesaver.
As the name suggests, this type of insurance comes with no premium cost, making it a popular option for those on a tight budget. But how does it work, and what are the benefits?
This article breaks down everything you need to know about zero-cost term insurance, including the different types available, their advantages, and how to purchase a policy.
So, sit back, relax, and dive into the world of zero-cost term insurance.
What Is Zero Cost Term Insurance?
Zero-cost term insurance is a type of term insurance plan where the policyholder does not have to pay any premium for the basic life cover.
Instead, the insurer earns interest on the premium amount paid by the policyholder and uses that interest to cover the cost of insurance. This allows the policyholder to enjoy the benefits of a life cover without paying any premium.
However, it is important to note that zero-cost term insurance plans usually have a limited policy term and coverage amount.
In addition, these plans may not offer riders or additional benefits that are available with traditional term insurance plans.
Therefore, it is important for policyholders to evaluate their coverage needs and compare different plans before opting for a zero-cost term insurance plan.
a) Term Plan with Return of Premium (TROP)
A Term Plan with Return of Premium (TROP) is a type of term insurance plan that offers a refund of the premium paid at the end of the policy term, provided the policyholder outlives the term of the policy.
Unlike traditional term insurance plans, where the premium paid is not refunded if the policyholder survives the term, TROP offers the advantage of insurance coverage and savings.
Under TROP, the premium amount is generally higher than regular term insurance plans since it includes the savings element. The premium amount is calculated based on the age of the policyholder, policy term, and sum assured.
In the event of the policyholder’s death during the policy term, the sum assured is paid to the nominee.
However, if the policyholder survives the policy term, the insurance company refunds the total premium paid during the policy term. The premium refund is tax-free under Section 10(10D) of the Income Tax Act, 1961.
TROP provides the policyholder with the financial security of a life insurance policy and the savings advantage of a traditional endowment policy.
The policyholder can use the refund amount for various purposes such as retirement planning, children’s education, or any other financial goal.
It is important to note that TROP plans generally have a higher premium than regular term plans, and refunding the premium feature adds to the overall cost.
Therefore, evaluating the benefits of TROP against the cost is essential before purchasing the plan. Additionally, the policyholder must ensure to pay the premiums regularly to enjoy the full benefits of the plan.
b) Term Plan with Special Exit Value
Term Plan with Special Exit Value is a term insurance plan that provides an option to receive a payout at the end of the policy term or earlier in case of critical illness diagnosis or accidental disability.
This plan offers flexibility to the policyholder by allowing them to exit the policy before the maturity date and receive a lump sum payout.
The special exit value is calculated based on the percentage of premiums paid and varies depending on the insurer and the policy’s terms and conditions. The percentage may range from 30% to 80% of the premiums paid.
In case of a critical illness diagnosis or accidental disability, the policyholder can receive the payout and end the policy before the maturity date.
However, the policyholder must have paid a minimum number of premiums before exercising this option, and the policy must be in force at the time of exit.
Two Variants of Term Insurance:
There are two main variants of term insurance:
- Level-Term Insurance
- Decreasing-Term Insurance
Level-Term Insurance:
Level-term insurance provides a fixed death benefit that remains the same throughout the policy term. This means that if you pass away during the policy term, your beneficiaries will receive the same amount of money regardless of when you pass away.
It is a popular option for those who want to ensure their beneficiaries have consistent financial protection.
Decreasing-Term Insurance:
Decreasing term insurance provides a death benefit that decreases over the policy term. This means the amount your beneficiaries will receive if you pass away decreases yearly.
It is often used to cover specific debts or financial obligations that decrease over time, such as a mortgage or a loan.
This type of insurance can be more affordable than level-term insurance but may not provide enough coverage for long-term financial needs.
Term Insurance Riders:
Term insurance riders are additional benefits or features you can add to your basic term insurance policy to enhance your coverage. These riders allow you to customise your insurance policy according to your needs and requirements.
Some common term insurance riders are accidental death benefit riders, critical illness riders, waiver of premium riders, and income benefit riders.
The accidental death benefit rider provides an additional sum assured if the policyholder dies due to an accident.
The critical illness rider provides a lump sum payout if the policyholder is diagnosed with a critical illness like cancer, heart attack, or kidney failure.
The waiver of premium rider waives off the premium payments if the policyholder becomes disabled or unable to work due to an injury or illness. The income benefit rider provides a regular monthly income to the policyholder’s family in case of the policyholder’s untimely demise.
It is important to understand the terms and conditions of each rider and how it affects your premium amount and sum assured.
You should carefully consider the riders that align with your needs and opt for them accordingly while purchasing a term insurance policy.
Types of Term Insurance Plans:
The following are the main types of term insurance plans:
Level Term Insurance Plan:
Level-term insurance is a type of term insurance that provides a fixed death benefit for a specific period, usually 10-30 years.
The premiums remain the same throughout the policy term, providing consistent protection for the policyholder’s beneficiaries.
It is often used to provide financial protection for dependents, pay off debts or cover expenses in the event of the policyholder’s death.
Increasing Term Insurance Plan:
Increasing term insurance is a type of term insurance that provides coverage that increases over time.
The premiums for this policy typically remain the same, but the death benefit increases annually or at other specified intervals.
This type of insurance is often used to protect against inflation and ensure that beneficiaries receive an adequate payout in the event of the policyholder’s death.
Decreasing Term Insurance Plan:
Decreasing term insurance is a type of term insurance that provides coverage that decreases over time. The death benefit decreases annually or at other specified intervals while the premiums remain unchanged.
This type of insurance is often used to cover specific financial obligations that decrease over time, such as a mortgage or other debt.
Return of Premium Term Insurance Plan:
Return of premium term insurance is a type of term insurance that provides a death benefit for a specific period, typically 10-30 years.
If the policyholder outlives the policy term, all premiums paid are returned to them. Premiums for this type of policy are typically higher than for traditional term insurance, but it can provide the benefit of a death benefit along with a savings component.
How to Buy Zero-Cost Term Insurance?
Buying zero-cost term insurance involves selecting a term insurance policy that offers a return of premium feature at the end of the policy term.
This means that if the policyholder survives the policy term, they will receive a refund of all the premiums paid during the term.
To buy zero-cost term insurance, you can research and compare policies from different insurers and choose the one that best fits your needs and budget.
You will need to provide personal and medical information to the insurer, and they will determine your eligibility and premium rates.
It is important to read the policy documents carefully and understand the terms and conditions before purchasing a policy.
1. Choose the Right Insurer:
Choosing the right insurer is an important part of purchasing term insurance. It is important to research and compare different insurers based on their reputation, financial strength, claim settlement ratio and customer service.
Choosing a reliable and trustworthy insurer can ensure that your policy provides the desired coverage and that your claims are processed efficiently in case of a claim.
2. Select the Sum Assured:
Selecting the sum assured is an important decision when purchasing term insurance. The sum assured is the amount that will be paid to the beneficiaries in the event of the policyholder’s death.
Choosing a sum that will provide adequate financial protection for your dependents and cover any outstanding debts or expenses is important.
3. Choose the Policy Term:
Choosing the policy term is an important consideration when purchasing term insurance. The policy term is the duration for which the policy provides coverage.
Choosing a policy term that aligns with your financial goals and the needs of your dependents is important. A longer policy term can offer greater financial protection but may come at a higher cost.
4. Pay the Premium:
Paying the premium is a crucial part of owning a term insurance policy. Premiums are the periodic payments made to the insurer to keep the policy in force.
The premium amount is determined based on several factors, such as the policy term, sum assured, age, and health of the policyholder.
It is important to make timely payments to avoid the policy from lapsing and ensure that it provides the desired coverage.
Benefits and Features of Zero-Cost Term Insurance:
Zero-cost term insurance offers several benefits and features, including a return of premium at the end of the policy term if the policyholder survives.
Other benefits of zero-cost term insurance include affordable premiums, flexible policy terms, and a choice of riders to enhance coverage.
The policy provides financial protection to the policyholder’s dependents in the event of their untimely death and can also be used to cover outstanding debts and other financial obligations.
Discontinuity of Plan:
Discontinuity of plan refers to when a policyholder stops paying the premiums for their term insurance policy, and the policy subsequently lapses.
This can result in the loss of financial protection for the policyholder’s dependents in the event of their death.
It is important to make timely premium payments to avoid the discontinuity of the policy and ensure that the policy provides the desired coverage.
Refund of Premium:
Refund of premium refers to the situation where the policyholder receives a refund of the premiums paid during the policy term if they survive till the end of the term.
This feature is typically offered in return of premium term insurance plans. The refund of the premium can provide a sense of financial security and can be used to cover other expenses or to invest in the future.
Lifelong Cover:
Lifelong cover refers to the feature offered by some term insurance plans where the policy provides coverage for the entire lifetime of the policyholder rather than for a specified term. This type of coverage is also known as whole life insurance.
It offers financial protection for the policyholder’s dependents throughout their life and may also provide other benefits such as cash value accumulation and the ability to borrow against the policy.
Reasonable Premium Amount:
Reasonable premium refers to the affordable and fair amount that policyholders pay for their term insurance policy. The premium amount is determined by the policyholder’s age, health, and the sum assured.
Choosing a policy with a reasonable premium amount is important to ensure that the policy remains affordable and does not strain the policyholder’s finances.
Regular and Return of The Premium Plan:
Regular-term insurance plans require the policyholder to pay a premium for the chosen policy term and offer a death benefit to the policyholder’s beneficiaries if the policyholder passes away during the term.
Return of premium plans, conversely, refund the premiums paid at the end of the policy term if the policyholder survives the term.
These plans generally have higher premiums than regular term insurance plans but can provide financial security to policyholders who want a return on their investment.
Documents Required for Zero Cost Term Plan:
To buy a zero-cost term plan, policyholders are typically required to submit certain documents to the insurer, including:
- Age Proof: Any government-issued document that serves as age proof, such as an Aadhaar card, passport, driving license, etc.
- Identity Proof: Any government-issued identity proof such as an Aadhaar card, PAN card, passport, driving license, etc.
- Address Proof: Any government-issued address proof such as an Aadhaar card, passport, utility bills, bank statement, etc.
- Income Proof: Any document that provides income proof, such as salary slips, income tax return statements, etc.
- Medical Reports: Certain insurers may require medical reports to ascertain the individual’s health condition and assess the risk factor.
- Nominee details for the policy’s death benefit payout in case of the policyholder’s demise.
Conclusion:
Zero-cost term insurance is an affordable and straightforward way to secure your family’s financial future in the event of your untimely demise.
By understanding the types of term plans available, selecting the right sum assured, policy term, and insurer, and paying the premium on time, you can enjoy features like a lifelong cover, a reasonable premium amount, and even a refund of the premium.
So, take the first step towards financial security and buy a zero-cost term plan today.
Frequently Asked Questions (FAQs):
Yes, you can discontinue your zero-cost term insurance plan, but you will not receive a premium refund if you do so.
To select the right insurer for zero-cost term insurance, you should check their claim settlement ratio, financial stability, customer service, and product features.
The documents required to buy zero-cost term insurance include identity proof, address proof, age proof, and income proof.
The benefits of zero-cost term insurance include lifelong cover, a reasonable premium amount, a refund of the premium at the end of the policy term, and financial security for your loved ones.
Zero-cost term insurance is a type of term insurance plan where the premium paid is returned to the policyholder at the end of the policy term, provided they survive the policy term.