Zero-Cost Term Plan : What Is It and How to Use It?

Term life insurance plans offer affordable premiums and substantial coverage. However, despite their numerous benefits, many consumers avoid opting for term plans as they offer no benefits or returns if they survive the insurance period. 

If you are avoiding term insurance for the same reason and are seeking an affordable policy with a money-back option, the zero-cost term plan is the perfect life insurance variant for you. 

Read on to learn more about this term life insurance plan and explore its numerous benefits.

What Is a Zero-cost Term Plan?

A zero-cost term plan is a unique variant of term insurance (however, common across most of the major insuring companies) that refunds the premiums paid by the policyholder in case they survive the policy term. Let’s look at Rajeev’s experience to understand how it works. 

Rajeev Prakash, a teacher by profession, has always sought ways to secure his family’s future without compromising on his present financial commitments. He selected the zero-cost term plan, which offered substantial coverage, and promised to return his premiums if he outlived the term.

Rajeev paid regular premiums of ₹ 15,000 over 35 years, ensuring his family would be financially protected in his absence. As years passed and Rajeev remained healthy, the insurance term concluded without a claim. The insurance company remained true to their words and refunded the total premiums paid by Rajeev over the tenure, amounting to ₹ 5.25 lakhs. 

This way, the zero-cost term plan not only secured the financial future of Rajeev’s family throughout the term but also refunded him the premium, which he can add to his retirement corpus. 

Benefits of a Zero-cost Term Insurance

Opting for a zero-cost term plan gives you access to the following benefits: 

1. High coverage: The zero-cost term plan provides substantial coverage as death benefits. The amount promised almost equals the coverage of a standard term life insurance. 

2. Affordable premiums: Similar to a standard term life insurance, the zero-cost term plan is also affordable. While it is not as cheap as a term plan, it is still considerably cheaper than other life insurance variants. 

3. Tax benefits: Policyholders can claim a deduction of up to ₹ 1.5 lakhs on the premiums paid for the zero-cost term plan under Section 80C of the Income Tax Act.

4. Return of premium: If you survive the insured period, the insurance company will refund the amount paid as life insurance premiums, subject to certain terms and conditions, as per your policy. The conditions may vary from insurer to insurer. 

Limitations of a Zero-cost Term Plan

While a zero-cost term plan offers multiple benefits, you must also be mindful of its limitations:

1. Limited period coverage: The coverage provided by a zero-cost term plan is available only for a limited time. At the end of the period, you can get a refund on the premiums or continue the policy like a standard term plan. 

2. More terms and conditions: Zero-cost term plans have an extensive list of terms and conditions. All these conditions must be met before requesting a refund on premiums. 

3. Strict surrender policies: Zero-cost term plans have strict surrender policies. This means you can only terminate the insurance during a specific window. Moreover, the surrender value of zero-cost term plans is lower than other insurance policies. 

4. Limited payment term: Unlike other life insurance variants, this plan’s premium payment term only lasts a few years. Moreover, you must also pay the premiums upfront, making it financially unfeasible. 

Key Takeaways

A zero-cost term plan is an impressive variant of life insurance. If you are holding back from getting term insurance due to a lack of returns, then this variant offers a perfect solution. However, getting your money back should not be your top priority. Our advice would be to carefully consider the pros and cons of all options and compare numerous parameters before deciding on a life insurance policy. You can further simplify your decision-making process and explore zero-cost term plans on platforms like PhonePe to find the perfect life insurance policy for your needs.