Life is unpredictable, and safeguarding the financial future of our loved ones is a responsibility that weighs heavily on our minds. Term life insurance is one of the most effective ways to provide financial security to your family in case the unexpected happens. However, when it comes to choosing a term life insurance plan, you're faced with a crucial decision: Do you opt for a Zero Cost Term Plan or a Return of Premium Term Plan?
In this article, we'll delve into these two popular term life insurance options to help you make an informed choice that aligns with your financial goals and circumstances. Each of these plans has its unique features, advantages, and drawbacks, making it essential to understand them thoroughly before committing to a policy.
What is a Zero Cost Term Plan?
Zero Cost Term Insurance Plan is a type of term life insurance that offers coverage at no cost. This means that you pay the premium for the policy and can exit after a specific tenure mentioned in the policy and receive the premiums paid back.
Zero Cost term insurance plan comes at a low premium as compared to regular term plans. Zero-cost term plan also offers multiple rider options that policyholders can select. The zero-cost term insurance plan usually has a long policy term of 30-40 years.
How Does Zero Cost Term Plan Work?
A Zero Cost Term Plan in India is designed to provide pure financial protection to the policyholder's family in case of their demise during the policy term. In a zero-cost term insurance plan, the policyholder has the option to exit the plan at a certain age and get all the premiums that he has paid.
Here is an example of how zero cost term insurance plan works:-
Suman, a 35-year-old married person, recently lent a housing loan of Rs. 30 Lakhs. To safeguard his family's financial well-being in the unfortunate event of his passing, Mr. Suman decided to acquire a zero-cost term insurance policy with a lengthy 30-year term. In the event of his demise, his family stands to receive a substantial sum assured of Rs. 50 Lakhs. However, 15 years down the line, Mr. Suman’s son becomes financially self-sufficient through his earnings. Furthermore, due to favourable investment returns, Mr. Suman successfully repays his housing loan and realizes that he no longer requires term insurance coverage. Utilizing the flexibility provided by his zero cost term insurance plan, he opts to terminate the policy and receives a refund of the premiums he had diligently paid over the years.
Top Best Zero Cost Term Insurance Plans in India
| Company Name |
Plan Name |
Premium Per Month |
|
| Canara HSBC OBC Life Insurance Company |
Canara HSBC iSelect Smart360 |
1015/- |
Buy |
| HDFC Life Insurance Company |
HDFC Click 2 Protect Plan |
1058/- |
Buy |
| Max Life Insurance Company |
Max Life Smart Secure Plus Plan |
998/- |
Buy |
| Bajaj Allianz Life Insurance Company |
Bajaj Allianz e-Touch Plan |
1002/- |
Buy |
*Above mentioned premiums are just for illustration purposes only*
What is the Return of Premium Term Plan?
A Return of Premium Term Insurance Policy is a specific type of term insurance plan that offers a refund of the total premiums paid by the policyholder if they survive the policy term. This means that if the insured person outlives the policy term, the insurance company returns the total amount of premiums paid throughout the policy, providing a kind of maturity benefit.
How Does Return of Premium Term Plan Work?
A Return of Premium (ROP) Term Plan combines the features of a traditional term insurance plan with a savings component. It offers a refund of the total premiums paid by the policyholder if they survive the policy term. Here's an example of how a Return of Premium Term Plan typically works:
Vamsi is a 35-year-old IT professional who is the sole breadwinner for his family. He wants to ensure that his family are financially secure if something happens to him. He opts for a term plan with a return of premium option (TROP) that covers Rs. 50 Lakhs for a 20-year policy term. In this way, he can rest assured that his family will receive the death benefits in case of his untimely demise. In addition, he will get a refund of all premiums paid if he outlives the policy term.
Best Return of Premium Term Insurance Plans in India
| Company Name |
Plan Name |
Premium Per Month |
|
| Max Life Insurance Company |
Smart Secure Plus Plan |
1358/- |
Buy |
| Aditya Birla Sun Life Insurance |
Digi-Shield Plan |
1225/- |
Buy |
| Bajaj Allianz Life Insurance Company |
Smart Protect Goal Plan |
1344/- |
Buy |
| ICICI Prudential Life Insurance Company |
iProtect Return of Premium Plan |
1287/- |
Buy |
| TATA AIA Life Insurance |
Sampoorna Raksha Supreme |
1251/- |
Buy |
| Kotak Mahindra Life Insurance |
Kotak e-term plan |
1125/- |
Buy |
*Above mentioned premiums are just for illustration purposes only*
Factors to Consider When Deciding Between Zero Cost and Return of Premium Term Plans
Choosing between a Zero Cost Term Plan and a Return of Premium (ROP) Term Plan in India requires careful consideration of several factors. Here are the key factors to keep in mind when making this decision:
- Financial Goals
- Budget and Affordability
- Investment Alternatives
- Future Financial Needs
- Duration of Coverage
- Emergency Fund
- Exit Strategy
- Tax Planning, etc.
Comparison between Zero Cost and Return of Premium Term Plans
| Factor |
Zero Cost Term Insurance |
Return of Premium Term Insurance |
| Premium Cost |
Zero Cost Term Plan is less expensive than the return of a premium term plan |
Return of Premium term insurance plans to charge a 70-80% higher amount of premium than zero cost term insurance plan |
| Early Exit Option |
You have the option of whether you would like to take your premiums back early, or if you would like to continue paying for the plan for the time being. |
Your coverage will continue till the end of the policy term on premiums being paid and the return of premiums will happen at the end of the policy term only. |
| Suitability |
Zero-cost term life insurance is best suited for salaried employees |
Return of premium term life insurance is best suited for self-employees |
| Policy Term |
Zero-cost term life insurance has a longer policy term i.e., 30 to 40 years |
Return of premium term life insurance has the flexibility to choose your policy term. |
| Returns |
In zero-cost term plans, the policyholder can exit the plan when they do not have any liabilities at a certain age. And get all premiums paid back. |
In return for premium term plans, the policyholder has to pay the premium till the end of the term and then gets a return. |
| Tax Benefits |
Premiums paid are eligible for tax deductions under Section 80C. |
Premiums paid are eligible for tax deductions under Section 80C, and the maturity benefit is usually tax-free under Section 10(10D). |
Maturity Benefit |
No maturity benefit is provided. Premiums are not refunded if the policyholder survives the term. |
Provides a maturity benefit by refunding all premiums paid if the policyholder survives the term. |
Premium Comparison of Zero Cost Term Plan Vs Return of Premium Term Plan
- Age: 35 Years
- Gender: Male
- Tobacco Consumption: No
- Monthly Income: 50000
- Policy Term: 30 Years
- Total Payout: 50 Lakhs
| Plan Name |
Premium Per Month |
|
| Zero Cost Term Plan |
1004/- |
Calculate |
| Return of Premium Term Plan |
1579/- |
Calculate |
*Above given premiums are just for illustration purposes only* Please compare quotes for the exact premiums.
How to Buy the Best Term Insurance Plan Online in India
Following are the steps to purchase the best term insurance plan online at PolicyBachat:
Step 1:Visit PolicyBachat official website and then select the “Term” tab. Enter details such as Gender, Annual Income, Alcohol consumption and tobacco consumption, type of occupation, salary, and Date of Birth.
Step 2: Now the different term insurance plans and their premiums from different insurance companies will be displayed on the screen.
Step 3: The next step is to select the best term insurance plan. You can change your premium by adding the riders you want. After deciding, you can purchase a policy from PolicyBachat directly.
Frequently Asked Questions
What is the Primary Difference between a Zero Cost Term Plan and an ROP Term Plan?
The primary difference is that a Zero Cost Term Plan does not provide any maturity benefit, while an ROP Term Plan offers a refund of all premiums paid if the policyholder survives the policy term.
Which Plan is More Affordable, a Zero Cost Term Plan or an ROP Term Plan?
Zero Cost Term Plans are generally more affordable in terms of premiums. ROP Term Plans come with higher premiums.
Can I Exit an ROP Term Plan Before the Maturity Date?
Yes, many return of premium Term Plans allow policyholders to exit the policy before the maturity date, but the amount refunded may be lower than the total premiums paid. This option varies among insurers.
Do Both Types of Plans Offer Tax Benefits?
Yes, premiums paid for both Zero Cost Term Plans and ROP Term Plans are generally eligible for tax deductions under Section 80C of the Income Tax Act in India, up to specified limits. Additionally, the maturity benefit from a Return of a premium plan is usually tax-free under Section 10(10D).
Are there any Additional Riders available for these types of Term Plans?
Many insurance providers offer additional riders or add-ons that can be added to both Zero Cost Term Plans and ROP Term Plans, such as critical illness riders, accidental death riders, or waiver of premium riders. These riders enhance the coverage based on your needs.
Can I Customize the Coverage Amount and Policy Term for Both Types of Plans?
Yes, both Zero Cost Term Plans and ROP Term Plans typically allow policyholders to customize the coverage amount and policy term based on their individual requirements and financial goals.
Conclusion
Both types of plans serve the purpose of providing financial security and return of premiums but they do so in different ways to cater to different financial objectives. The choice between a Zero Cost Term Plan and a Return of Premium (ROP) Term Plan depends on your individual financial goals and budget. If you prioritize affordable pure protection, a Zero Cost Term Plan may be better. If you want both insurance coverage and the potential for premium refunds at the end of the term, an ROP Term Plan might align with your goals.
To get the best term insurance plan compare quotes online at PolicyBachat.