Understanding Zero Cost Term Insurance Policy

September 01, 2023

While the term "zero cost term insurance" might sound like you're getting insurance coverage without any expenses, the reality is a bit different. zero cost term insurance plan refers to a specific type of term insurance policy that offers a premium return benefit, essentially providing policyholders with a way to recoup their premium payments under certain conditions.

How zero cost term insurance policy works:

Premium Return: The unique feature of zero cost term insurance is that if the policyholder survives the entire policy term, a portion or the entire premium amount paid over the years is returned to them. This is often referred to as the "return of premium" or "survival benefit."

Death Benefit: In case of the policyholder's demise during the policy term, the full sum assured (coverage amount) is paid to the nominee(s) or beneficiaries, just like in a regular term insurance plan.

Conditions and Variations: The terms and conditions for the return of premium can vary among insurance companies and policies. Some plans require the policyholder to survive the entire term to receive the full premium back, while others may offer partial returns at specific intervals.

Higher Initial Costs: Zero cost term insurance policies generally come with higher initial costs due to the return of premium feature. This can make them less budget-friendly for some individuals.

Benefits of Zero Cost Term Insurance

Zero cost term insurance policies, which offer a return of premium feature, have several potential benefits for policyholders. While these policies typically come with higher initial premiums, they can be appealing to individuals who want a way to potentially recover the premiums they've paid over the policy term. Here are some benefits of zero cost term insurance:

Premium Return: The primary benefit of zero cost term insurance is the opportunity to receive a return of the premiums paid if the policyholder survives the entire term. This can serve as a form of savings or an investment component within the insurance policy.

Financial Security: In the event the policyholder passes away during the policy term, the full sum assured (coverage amount) is paid to the nominee(s) or beneficiaries. This provides financial security to the policyholder's loved ones.

Savings with Insurance: Zero cost term insurance allows policyholders to combine life insurance coverage with the potential for a premium refund. It can be attractive to those who want the protection of life insurance but also desire some financial benefit if they outlive the policy.

Tax Benefits: Premiums paid for zero cost term insurance policies may be eligible for income tax benefits under Section 80C of the Income Tax Act in India. Additionally, the death benefit received by nominees is typically tax-exempt under Section 10(10D), subject to applicable tax laws.

No Risk of Premium Loss: Unlike traditional term insurance, where the premiums paid are considered an expense with no return, zero cost term insurance offers the policyholder a chance to recover the premiums paid over the policy term.

Peace of Mind: Knowing that the premiums paid will be returned if the policyholder survives the term can provide peace of mind, as it provides a financial cushion that can be useful in various ways.

Flexibility: Policyholders can often choose the coverage amount (sum assured) and the policy term based on their specific financial needs and responsibilities.

Nominee Protection: Zero cost term insurance ensures that the nominee(s) or beneficiaries receive a substantial death benefit in case of the policyholder's untimely demise. This can help maintain their financial stability.

Forced Savings: The higher initial premiums in zero cost term insurance policies can act as a form of forced savings, encouraging policyholders to set aside money for the future.

Is Zero Cost Term Insurance Right for You?

While the idea of getting back your premiums may seem attractive, it's important to carefully evaluate whether it aligns with your financial goals and needs. Consider these factors:

Budget: Assess whether you can comfortably afford the higher initial premiums associated with zero cost term insurance.

Financial Goals: Determine whether the return of premium aligns with your long-term financial objectives.

Alternative Investments: Explore other investment options that may provide better returns on your money compared to the return of premium feature.

Coverage Needs: Ensure that the coverage amount meets your family's financial needs in case of your untimely demise.

Companies which offer zero-cost term plans in India

Top insurance companies which provide zero-cost term plans in India, compare & buy with reputable insurance providers. Some well-known insurance companies that have offered such plans in the past include:

  • HDFC Life Insurance
  • ICICI Prudential Life Insurance
  • Max Life Insurance
  • SBI Life Insurance
  • Tata AIA Life Insurance
  • Bajaj Allianz Life Insurance

It's essential to carefully read and understand the terms and conditions of any insurance policy, including zero cost term insurance, before purchasing it. While the concept of getting back the premium paid over the years may seem appealing, it's crucial to consider whether the higher initial costs are justified based on your financial goals and needs.

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