You can describe zero-cost term insurance as no-cost term insurance. We know that it is a specific life insurance policy designed to provide high coverage to policy buyers but at zero cost or no cost. To simplify, the monthly premiums that you would pay under this policy would be returned at maturity. It can be said that a zero-cost policy has been designed to offer you cost-effective financial protection. This feature is its USP that makes it an attractive option for people seeking reliable financial protection for their loved ones.
What is a Zero Cost Term Insurance Plan?
Zero cost term insurance plan is an alternative to term insurance, but offers similar protection, which is light on buyers' pocket. The easy-on-pocket features make it feasible for those who don't want to spend money on insurance. Zero cost term insurance plans will invest your premium amount and use the returns on the amount to cover your insurance cost. This aspect eliminates the need for fees. Now, while your traditional term plans require you to pay regular premiums to maintain your coverage, this plan acts as a cost-effective alternative.
What are the Features of a Zero Cost Term Insurance?
You will find the following are the distinguishing features of zero cost term insurance plan -
- Coverage: This insurance accompanies a high coverage amount. It means you can avail of a high cover amount after a predetermined time when your financial responsibilities are less.
- Riders: You can add one or multiple riders such as accidental death benefit or critical illness to your zero cost term insurance.
- Death benefit: Under this plan, a death benefit is paid to the policy nominee. Such a benefit, as we know, is paid to them if the insured succumbs to accidents during the policy period.
- Term: You have the flexibility to choose a suitable policy term for which you need financial coverage. Typically, no-cost term insurance plans come with a long policy term, say 20-30 years.
- Tax benefits: As a zero cost term insurance policy holder you would be eligible to claim tax benefits under section 80C of the Income Tax Act. The tax benefits could further make it a cost-saving option for you.
- Premium: The premiums you pay for the policy will be returned to you on maturity. You may use the money to plan your retirement or meet financial goals.
- Exit: If you avail of this policy, you will have the freedom to exit before the full term. However, it is best to learn more about the terms and conditions associated with such a feature.
Key Benefits of the Zero Cost Term Insurance
The key features of the insurance plan offer several benefits to policy buyers. Hence, you can expect to benefit in these ways -
Zero cost term insurance plans offer substantial life coverage. This will help you to secure the financial safety of your loved ones. It will offer you peace of mind that your family members are safe and secure against certain financial emergencies.
Similarly, the plan comes with affordable premiums, so that you can build financial coverage without increasing your burden. The fact you will receive the paid premium amount on maturity makes the policy quite pocket-friendly. This financial support will help you to support your family or goals.
Tax benefits under Section 80C of the Income Tax Act will further make the policy easy on your pocket. The tax benefit will allow you to save up to Rs. 1.5 lakhs to save each year on the money you pay as a premium. Meanwhile, zero cost term insurance allows beneficiaries to receive tax-free death benefits under Section 10 (10D)* of the Income Tax Act.
Zero cost plans will also offer you the flexibility to choose a suitable term plan, coverage, premium amount, and payout option. Based on your financial requirements you can select a coverage amount. To gain a better picture of your requirement you can add up all your income and subtract all your expenses and upcoming obligations from it. This will tell you what's your financial standing and how much coverage would be adequate. You use a term insurance calculator to determine the same. The tool will also tell you how much premium you would have to pay for a certain coverage amount. Similarly, it is advised that you pick a tenure based on your needs for family protection. For instance, if you plan to retire after 15 years and want to develop a financial cover for the duration you can opt for a no-cost policy for 15 years.
A zero-cost term insurance plan would be suitable for salaried professionals with limited disposable income. The affordable premium will allow you to manage the financial pinch without straining your resources.
Return of Premium Plan vs Zero Cost Term Plan
Firstly, you must note that your choice should be driven by your coverage needs and financial requirements. That said, a zero cost policy extends substantial coverage amount at a nominal premium amount. This premium is paid back when the policy matures, making the policy affordable and cost-effective. Meanwhile, the return of premium offers a lifelong financial cover and returns the paid premium amount. It may not invest your money into investment options.
Will Zero Cost Term Insurance Policy Suit You?
As discussed before, if you are a salaried professional and have limited income you may find the plan suitable. This plan is suitable for risk-averse individuals. If you are among those policy buyers who prioritize receiving premiums back over the absence of maturity benefits then you can consider this policy over traditional term plans. Suppose, you are in your 20s and you plan to buy a zero-cost policy for a period of 30 years, it could serve as a good deal. You will not lose any premium and at the same time create a financial backup for your family. Regardless, it is recommended that you calculate your premium using a term insurance calculator, read the plan carefully, and understand the terms and conditions to understand if it meets your needs and requirements.
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