Zero Cost Term Insurance vs ROP
Updated: Oct 26, 2022
The most popular kind of life insurance coverage, referred to as term life insurance, offers financial security to the policyholder's family in the event of a tragic accident. in the event. Suppose you pay a premium for a term insurance policy for a considerable amount of time—say, let's 32 years—and then decide to cancel the policy because you no longer need it or have no responsibilities.
Regular term insurance policies don't include a survival benefit that allows you to receive back the premium you paid at maturity, but some insurers have introduced a new term insurance option called Zero Cost Term Insurance that allows you to receive back all of your premium payments at a predetermined age if you choose.
Zero Cost Term Insurance: What Is It?
There were now just 2 types of term insurance policies offered by the insurance sector. One is a regular term plan, commonly known as a "term plan," in which the beneficiary will get the cover amount in the event that the policyholder passes away within the policy period (Sum assured). Additionally, no maturity amount is paid if they live past the policy's term. Return of Premium (ROP), the second term plan option, allows the policyholder to receive their premium money back minus GST in the event that they survive until the conclusion of the policy term. ROP plans, however, cost around twice as much as regular term plans.
Although term plans are the most affordable and effective type of life insurance available worldwide, it has been observed that some individuals still do not purchase term insurance despite understanding its advantages. These individuals may feel they will not receive anything in the event of their survival or believe the Return of Premium (ROP) plans are expensive. Due to the uncertainty surrounding retirement age and the financial dependence of family members after age 60 or 65, it has been observed that most customers prefer to purchase a cover for a longer policy term or age. In order to serve this market, insurers are now providing a new kind of term insurance plans that is known as a Zero Cost Term Insurance Plan.
This plan contains an exit option that allows you to cancel at a certain point in your life and receive a full refund of your premiums. It is priced slightly higher than a standard term plan. As a result, you have the option of receiving your premium back at the same price, saving you from having to pay twice.
Benefits of Buying Zero Cost Term Insurance Plans?
The fact that individuals are living longer is one of the key factors driving their search for longer-term insurance coverage. Many policyholders would like to choose term insurance coverage up until the age of 75 because they are unsure when they will retire. However, there is a risk that if their family or financial dependents are resolved and their needs are met, they may decide to retire at age 60 or they may not need an insurance plan.
This means that after paying premiums for 30 years, you can choose to cancel the policy and get your premiums paid back, if you believe your liabilities are no longer sufficient to be covered by term insurance.
Key Aspects of Zero Cost Term Insurance Plans
Customers may afford these plans more easily than Return of Premium (ROP) programmes. Zero Cost plans are often about 50% less expensive than ROP policies.
Customers who are unsure of their retirement age or the dependency of family members on their income in later life are most suited for these plans.
Zero Cost Term Insurance Vs ROP (Return of Premium) Plans
In both the cases, you do get your premium back, however there is a difference or two when it comes to the cost and exit criteria.
As you can guess, the zero-cost term insurance is cheaper than the usual ROP plans. To give you an estimate, you might be looking at 70-80% more expensive quotation, if you go ROP plans than the regular term plan.
You have early exit option in zero-cost term insurance. In case of ROP plans, you would have to stick with the policy paying till the policy end term, you can't exit in between the policy term and get back your premiums.
Should You Purchase a Return of Premium or Zero Cost Term Insurance Plan?
Financial advisors always suggest opting for the plain-vanilla term plan instead of ROPs as these are expensive. You can buy a term insurance plan with life cover online having low-cost till 70 years of age to meet your insurance needs. Let's say, at 55 years you have met all your financial responsibilities or have accumulated sufficient funds to meet them, then you can think of discontinuing the term insurance plan by opting for Zero Cost term insurance plan. These plans are best suited for customers who are not sure of their retirement age or dependency of family members on their income at an older age.
As of now, below are the two policies currently introduced as Zero-cost term insurance:
Max Life Smart Secure Plus Plan
HDFC Life Click 2 Protect Super
Bajaj Allianz E-Touch Plan
18 to 60 years
18 to 84 years
18 to 45 years
10 to 67 years
10 to 67 years
10 to 67 years