Buying a term insurance plan is one of the wisest financial decisions you could take. It not only helps in safeguarding the financial future of your loved ones if you’re not around, but also helps you save taxes and build stability in your financial portfolio. But normally, a term plan gives only death benefit, i.e. the nominee gets the sum assured only at the unfortunate event of the policyholder’s demise. And if the policyholder survives the policy term, no survival benefit is accrued. So, does that mean all those premiums that you paid during the entire policy period will now go to waste?
Luckily, now most of the companies, be it Max Life Insurance, ICICI Prudential or Bajaj Allianz, now offer options where you can get your premium back on surviving the policy term of your term insurance. Let’s know about these options in detail here.
What is Return of Premium in a Term Insurance Plan?
Let’s understand the concept or Return of Premium Term Insurance with an example:
Mrs X, 25 years old, buys a ROP term plan for a sum assured of Rs 1 Cr. She pays a premium of Rs 25,000 per annum for a policy term of 30 years. She leads a healthy lifestyle and fortunately enough, survives the 30 years of policy term. Now that she had taken up ROP term plan, she got the entire* premium that she paid to the insurer throughout these 30 years.
*exclusive of applicable taxes
What is a Free of Cost Term Insurance Plan?
In the case of a free of cost or commonly known as, a zero cost term plan, the policyholder gets the option to exit from the policy BEFORE the policy term expires. In such an event, the policyholder gets the money back equivalent to the total amount of premium paid till date. However, it must be noted that the taxes levied on premium payment is not returned.
Difference between Return of Premium and Free of Cost Term Insurance Plans
The following table draws a comparison between the two types of term plans, i.e. a return of premium term plan and a free of cost term insurance plan:
|Return of Premium Term Plan
|Free of Cost Term Plan
|Policyholder gets back the premium paid if they survive the policy term.
|Policyholder can get back the premiums paid during the policy term.
|Return of premium is guaranteed.
|If policyholder does not exercise the exit option & survives the policy term, no premium is paid back.
|No exit option available.
|Exit option is provided.
|Premiums are returned only AFTER the policy period expires.
|Premiums are returned BEFORE the policy period expires, if the policyholder exits the policy before the due date.
|It is expensive (approx. 70-80% higher) than a regular term plan.
|The cost is more or less the same as that of a regular term plan.
|Can be taken for shorter period of time, e.g. 15 years.
|Policy term has to be longer, say 35-40 years.
Companies Offering Return of Premium Term Plan
Most of the insurance companies in India offer the return of premium option with their term insurance plan. The following are the top term plans in India with the return of premium option:
|Name of the Plan
|Max Life Smart Secure Plus
|Protection up to 85 years of age
Entry age from 18 – 60 years Critical Illness Rider covering 64 illnesses
Premium break allowed, twice in the policy term
|Claims Paid Ratio: 99.51% Solvency Ratio: 201%
|Bajaj Allianz eTouch Online Plan
|Protection of up to 99 years of age
Entry age from 18 – 55 years Minimum Premium of Rs 5,000
|Claims Paid Ratio: 99.02% Solvency Ratio: 516%
|ICICI Pru iProtect Smart Plan
|Protection of up to 99 years of age
Entry age from 18 – 65 years Accidental Death Coverage up to Rs 2 crore
|Claims Paid Ratio: 97.82% Solvency Ratio: 203.6%
There are some insurance companies that offer free of cost term plan or commonly known as the zero cost term plan. Some of these are:
Max Life Insurance, which sells its Max Life Smart Secure Plus term plan, has two options. The first one is the return of premium option whereas the second one is the zero cost term plan. In the first option, you will get all your premiums back minus the taxes, once you complete the policy term. With the second option, which is the zero cost option, you get the option to exit the plan after 25 years of paying your premiums. But, if you complete the policy term and do not exit from the policy within the stipulated time, no premium will be returned.
Likewise, there is the HDFC Life Click 2 Protect Plan in which you get the exit option after 35 years of paying the premium when you opt for the zero cost term plan option in it.
Other plans include Bajaj Allianz e-Touch plan, ICICI Pru iProtect Smart Term plan and Canara HSBC iSelect Smart 360 plan.
Which plan should I buy – Return of Premium or Zero Cost Term Plan?
If you’re considering buying term insurance for yourself that will safeguard your family after you in case of a mishap, it is a good idea to go with the vanilla term plan. It offers you pure risk benefit and does not burn your budget. However, if you are getting the option of return of premium, e.g. with Max Life Smart Secure Plus plan or Bajaj Allianz e-Touch plan, you can opt this and get your money back after you survive the entire policy term. But then, you have to keep in mind that in a return of premium term plan, the premium will increase by 70-80% as compared to a basic term plan.
A zero cost or free of cost term plan does give you the exit option, and if you think that your liabilities will dissolve after a set period of time and it matches your chosen term plan’s exit policy, then you can opt for it. Premium will not differ much. However, if you complete the policy term and do not exercise the exit option, you will not get the premiums back.
Zero Cost Term Plan vs. Return of Premium Term Plan: FAQs
A zero cost term plan is a type of term insurance where you get the option to exit the plan after a set number of years. When you exercise this option, you get back the premium you’ve paid till date. If you do not exit and survive the policy term, premiums are not returned.
Yes. Some insurance companies use the zero cost term while other prefer using no cost term plan.
A zero cost term plan is good for those who are sure that their financial liabilities and responsibilities will get over after a certain age. If that’s the case, you can choose to change your basic term plan with a zero or no cost feature. With this, your premium won’t increase much either.
A return of premium feature enables the policyholder to get their paid premiums back when they survive the entire duration of their term insurance plan. This option does not give an early exit option but the premiums are returned with guarantee after completing the policy duration.
No. Usually a no cost term plan can only be bought if the policy duration is longer, i.e. around 30-40 years. For a shorter duration, you may opt for the return of premium feature instead of no cost insurance plan.
Yes. Since you get the guarantee of getting our paid premiums back, the insurance companies charge you a higher premium, around 70-80% more than the basic term plan premium.