Term insurance is all about pure risk protection — offering a death benefit to dependents in case the policyholder passes away during the policy term. However, if the policyholder survives the policy term, there’s no payout. This very feature leads to many people asking themselves “why should I pay for something if there’s no return?” In view of this, life insurers are coming up with new products to give policyholders a solution.
One of the solutions designed to help customers find a way out of this dilemma is ‘Zero Cost Term Insurance’.
Zero Cost Term Insurance plans: What are they?
These plans, often marketed as “smart exit” or “special exit” plans, allow you to end the policy early and get a refund on the premiums you’ve paid up to that point, explains Aayush Dubey, Co-Founder and Research, Beshak.org. “But here’s the catch — you can only exit within a certain time window set by the insurer. If you do so, you’ll get your premiums back, minus GST.”
How do they work?
When buying term insurance, you typically select a policy term based on when you expect to reach financial independence. This is the age by which you expect to have paid off debts and accumulated sufficient wealth to support yourself and your dependents. However, sometimes financial independence arrives sooner than expected — which means you may no longer need the term insurance coverage. To help you understand how this term plan works, Dubey illustrates a scenario.
Raj, age 35, buys a term plan with a 30-year term and a Rs 1 crore cover to protect his family financially. By age 50, Raj’s investments have grown enough to pay off his home loan, and his son is now working and independent. Continuing the term plan might no longer make sense for him.
Also read: Term insurance Vs whole life insurance: Which is right for you?
With a regular term plan, Raj would lose the premiums paid if he chose to stop. But with a Zero Cost Term Insurance plan, Raj could exit during a predefined window and receive a refund of his premiums, net of GST. However, he must follow the insurer’s guidelines and exit only within this window, usually close to retirement age.
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