Understanding the concept of a zero-cost term insurance plan and determining whether it is the right choice for you.
Term insurance is a type of life insurance that is pure and cost-effective. It provides financial security to the policyholder's family in the unfortunate event of their demise. Several factors, such as age, annual income, total debt, location, gender, savings, and investments, are taken into account to determine the appropriate life insurance coverage. These factors help identify current and long-term financial goals, which play a crucial role in determining the ideal sum assured.
Recently, insurance companies have introduced zero-cost term insurance policies that combine the benefits of other options. One great example of this is the Zindagi Protect term plan by Edelweiss Tokio Life Insurance. These policies allow policyholders to receive their premiums back if they survive the policy term without having to pay a substantial premium. Choosing between a standard term plan, a return of premium plan, or a zero-cost term plan can be confusing for many individuals.
In this article, we will explore what a zero-cost term insurance plan is, how it differs from standard and return of premium term plans, and whether it is a suitable insurance option for you.
Understanding Zero-Cost Term Insurance
When considering term life insurance, you have three options to choose from:
- Standard term plan
- Return of premium term plan
- Zero-cost term plan
Let us expand this list and identify the differences:
- A standard term plan provides a death benefit if the policyholder happens to meet an untimely demise during the policy term. However, unlike regular life insurance, it does not offer a maturity bonus if the policyholder survives the term. The premium for a standard term plan is significantly lower, allowing for a higher sum assured at an affordable cost.
- Return of premium term plans offers a death benefit in the event of the policyholder's demise during the policy term. On the other hand, if the policyholder happens to survive the term, they will receive a full refund of the premium paid (excluding GST). The premium for return of premium term plans is roughly twice as expensive as regular term plans. It's crucial to understand that if you discontinue premium payments or cancel the plan before the term's completion, the insurer is not obliged to reimburse the previously paid premiums.
- Zero-cost term insurance plans combine the best features of both options. These policies have lower premiums than the return of premium plans and provide a refund of the paid premiums upon completion of the policy period. Compared to return of premium plans, zero-cost term insurance premiums are 40% to 50% lower. Additionally, depending on the insurer's terms and conditions, policyholders may cancel the plan before the term ends and receive a full refund of all premiums paid.
Benefits of Zero-Cost Term Plans
Zero-cost term plans offer the advantages of both standard term plans and return of premium term plans. They provide a more affordable alternative to return of premium plans. Policyholders have the flexibility to exit the plan at various stages of life without losing the premiums already paid once they retire or fulfill their financial responsibilities.
A zero-cost term plan is a cost-effective choice, ensuring that the nominee receives the sum assured in case of the policyholder's demise. If the policyholder survives the term, they receive a refund of the entire premium payment minus non-refundable fees and taxes. Similar to a standard term plan, policyholders can also choose to cancel the plan and receive a refund of premium payments minus non-refundable fees and taxes.
If you are considering purchasing a term policy, it is advisable to check out insurers like Edelweiss Tokio Life Insurance, that offer zero-cost term plans. Factors to consider include premium costs, coverage, customer service, ease of purchase and renewal, claim settlement ratio, and claim settlement process. Before deciding, carefully read the policy's T&Cs to avoid any surprises in the future.
