There's a new life insurance category — zero-cost term plans — that’s making waves the market. This category is besides the normal life insurance term and term return of premium (TROP) plans. Under zero-cost term plans, you can discontinue your policy and stop paying premiums at any point. The best news is they are not costlier than the usual term policies.
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Also, after discontinuing the policy, the customer will get back the premiums that they have paid minus GST until then.
Here are key things to know about zero-cost term insurance:
How is it different from other term insurance policies?
In term plans, there are two existing categories — a regular term plan and a TROP plan. Under the regular term plan, the policyholder pays X amount of premium up to a certain time period and if he/she dies during that time, the amount is paid to the family or beneficiaries whereas when the one buys the TROP plan, he/she will get a death benefit. This means the policyholder will get all the premiums back on surviving the policy term. These plans come at 1.8X to 2X the premium of a regular term plan, said Sajja Praveen Chowdary, Head Term Life Insurance at Policybazaar.com.
On the other hand, zero-term insurance policy is a new category of plan in which policyholder has the choice to continue the plan only till the time they want. Here, they can inform the insurer to shut down the plan when they do not have liabilities anymore or around retirement time, and the insurer will return all the premiums paid, Chowdary said.
What are the premiums?
The premiums for these plans cost the same as normal term plans and are not costlier, like the TROPs, Chowdary told CNBC-TV18.com.
Which companies are offering it?
Currently, these plans are being offered by Bajaj and Max while other insurers have filed for them.
Who can buy the policy?
The plans are eligible for customers below 45 years of age
Importance of zero-cost term insurance
Usually, exiting a term insurance policy leaves policyholders with nothing in hand. This is where the zero-cost term plans come in handy, said Naval Goel, Founder and CEO at PolicyX.
"Under this category, the policyholder can discontinue the policy if not required and he/she will receive the premiums paid after the deduction of GST. Only a few insurers in the market have rolled out these policies and the buyers can purchase these instead of the regular term plans to reap the benefits," he said.
Adding to this, Chowdary said the idea is to build a category of term plans for the customers who are still not investing in term insurance.
"In fact, term insurance is the cheapest form of insurance, and everyone should invest in it. With such plans introduced by insurers like Max Life, Bajaj and others, it will become even more affordable for customers to opt for it," he added.
