Zero-Cost At What Cost?

Launched with great fanfare, zero-cost term plans promised complete premium refunds upon retirement. But experts say in the presence of regular term plans and those offering premium returns, this new offering adds little value

- NAVNEET DUBEY

ARE YOU WARY of the ‘use-it-or-lose-it’ nature of pure term insurance plans? Intrigued by an insurance plan that promises to refund every premium you’ve ever paid? Enter the zero-cost term insurance plan.

Since it was launched in 2022, many companies have brought out their offerings to tap into customer demand. Companies like Max Life Insurance, HDFC Life Insurance, Bajaj Allianz Life, Canara HSBC Life Insurance, and ICICI Prudential Life provide these ‘zero-cost’ term plans, allowing policyholders to close the policy and receive a full premium refund or continue until maturity without any cashback benefits.

For the uninitiated, there are three fundamental forms of term insurance plans: The regular term plan, where the policyholder receives coverage for a fixed duration; the term plan with return of premium or TROP plan, which gives policyholders the option to get back premiums in case they survive the policy term; and, finally, the zero-cost term plan, which is a hybrid of the other two and gives policyholders the option of reclaiming premiums during the term.

Though this last option seems enticing, investors must read the fine print carefully. Besides, once you choose one type of policy, you cannot switch to another.

THE DISTINCTIONS

Before you proceed, there are a few more differences you need to keep in mind. In the regular plan, if the policyholder passes away during the term, the nominee is entitled to a death benefit, either as a lump sum or as periodic payments. Since it’s purely coverage for risk, there’s no maturity benefit if the policyholder outlives the term. These plans are budget-friendly, offering substantial coverage against life’s uncertainties.