Term insurance is all about pure risk protection — offering a death benefit to dependents in case the policyholder passes away during the policy term.
However, if the policyholder survives the policy term, there’s no payout. This very feature leads to many people asking themselves, “why should I pay for something if there’s no return?”
In view of this, life insurers are coming up with new products to give policyholders a solution.
One of the solutions designed to help customers find a way out of this dilemma is ‘Zero Cost Term Insurance’.
Zero Cost Term Insurance Plans: What Are They?
These plans, often marketed as “smart exit” or “special exit” plans, allow you to end the policy early and get a refund on the premiums you’ve paid up to that point, explains Aayush Dubey, Co-Founder and Research, Beshak.org.
“But here’s the catch — you can only exit within a certain time window set by the insurer. If you do so, you’ll get your premiums back, minus GST.”
Zero Cost Term Insurance Plans: How Do They Work?
When buying term insurance, you typically select a policy term based on when you expect to reach financial independence.
This is the age by which you expect to have paid off debts and accumulated sufficient wealth to support yourself and your dependents.
However, sometimes financial independence arrives sooner than expected — which means you may no longer need the term insurance coverage.
To help you understand how this term plan works, let’s illustrate a scenario:
Raj, at age 35, bought a 30-year term plan and a Rs 1 crore cover to protect his family financially.
By age 50, Raj’s investments had grown enough to pay off his home loan, and his son is now working and independent. Continuing the term plan might no longer make sense for him.
With a regular term plan, Raj would lose the premiums paid if he chose to stop. But with a Zero Cost Term Insurance plan, Raj could exit during a predefined window and receive a refund of his premiums, net of GST.
However, he must follow the insurer’s guidelines and exit only within this window, usually close to retirement age.
Take HDFC Life’s Click 2 Protect Super Plan, which offers a withdrawal window between the 30th policy year and the last five years of the policy.
This means that if you buy a policy at the age of 30 and keep it until the age of 75, you can only exit from the plan and get the premium refund between the ages of 61 and 70 — not before and not after. It’s important to keep track of this window to make sure you don’t miss out.
Special conditions for Zero Cost Term Insurance plans: Along with the exit window, other conditions may apply.
The premium refund is a lump sum and includes only the base premium, additional underwriting premiums, and loading for payment frequency — not rider premiums or taxes.
This option is not available if you’ve chosen a Return of Premium (ROP) term plan.
Once the refund is received, the policy is terminated.
The plan must remain in force until the exit.
Please note that the terms and conditions may vary across policies.
Are Zero Cost Term Plans Really Zero Cost?
“At first glance, these plans may seem like a ‘zero-cost’ option, but when factoring in the time value of money, the reality is a bit different. If you withdraw after years of paying premiums, you get only the sum of your contributions — no interest, no adjustment for inflation.”
“For instance, a 30-year-old non-smoker paying Rs 15,863 annually for a Rs 1 crore cover exits at age 60 after 30 years.
The refunded premium (net of GST) is Rs 4,03,290, but adjusting for inflation at 6% annually, its value 30 years later would be just Rs 70,216!”
“Take time to carefully go through the policy’s terms and conditions, as each insurer has their own specific requirements. Choose a plan only if it genuinely meets your needs and gives you peace of mind for the future.”
