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TERM INSURANCE PLANS BUYING GUIDE
Zero Cost Term Insurance

Zero Cost Term Insurance - Meaning, Benefits and Eligibility

Zero Cost Term Insurance
March 12, 2024

Table of Content

 

Zero Cost Term Insurance, also known as no-cost term insurance, refers to a specific type of life insurance policy that provides high coverage benefits at no cost to the policyholder. The monthly premium whatsoever is paid, is returned back to the policyholder at the time of maturity. So we can say that it offers cost effective financial protection to individuals and their families. This makes it an attractive option for individuals seeking financial protection for their loved ones without paying any additional cost. 

This article explores the features, benefits, and limitations of a zero cost term insurance policy, along with steps to purchase it and the required documents. If you are wondering whether to choose this type of life insurance and how much term insurance do I need, you have provided everything you need to make an informed decision.

What Is a Zero Cost Term Plan?

In today's uncertain times, having comprehensive life insurance coverage is of utmost importance. For those looking for alternatives to term plans, zero cost term plans provide the same financial protection while being light on your wallet. These are a type of life insurance policy where the policyholder enjoys life coverage without paying any extra cost. 

This means that individuals can secure their family's financial future without incurring any financial burden during the policy term. The insurance provider invests the premium amount and uses the returns to cover the policyholder's insurance costs, eliminating the need for fees. While traditional term plans require regular premium payments to maintain coverage, zero cost term insurance offers a unique and cost-effective alternative.

How Does a Zero Cost Term Insurance Plan Work?

When you're looking to buy a zero cost term insurance policy, you should think about how long you'll need the coverage. Try to imagine the age when you'll have paid off all your debts, and won't have any more financial responsibilities. By that time, your dependents may be able to support themselves, and they won't need your financial support anymore. This way, you won't have to pay for protection that you no longer need, and can save some money in the long run.

Features of a Zero Cost Term Plan

The salient features of a zero cost term plan are discussed as follows:

  • As the premium paid by the policyholder is returned at the time of maturity, this makes it a cost-effective option.

  • High coverage amount around Rs. 1 crore and more for a predetermined period, usually between 10 to 30 years to ensure financial security for your loved ones

  • Flexibility to choose the policy term and coverage amount according to your needs

  • Tax benefit available u/s 80C of the Income Tax Act

  • Gives you peace of mind as you know that your family is protected financially

  • Early exit option before the full term, if required

  • Suitable for salaried individuals with limited income

  • Enhanced financial planning by utilising saved premium amount for other investment options

  • The death benefit is paid out to the nominee(/s) in case of the policyholder's demise during the policy term

  • Option to enhance coverage through riders such as critical illness or accidental death benefit

Benefits of the Zero Cost Term Plan

Similar to the benefits of term insurance, zero cost term insurance has the following benefits:

  1. High Coverage:

    Zero cost term insurance provides a significant life coverage amount such as Rs. 1 crore term insurance, ensuring adequate financial protection for your family in case of unfortunate events.

  2. Affordable Premium:

    As the premium payments are paid back at the time of maturity, zero cost term plan offers a financially feasible option for individuals looking for life insurance coverage.

  3. Tax Benefits:

    Policyholders can avail tax benefits under Section 80C of the Income Tax Act on the premium paid towards their zero cost term insurance plan. Meanwhile, beneficiaries get tax exemptions on death benefits under Section 10 (10D)*.

  4. Flexibility:

    You have a flexibility to choose the policy term and coverage amount according to your needs, including options suitable for term insurance for NRI policyholders who want to protect their families back home.

  5. Peace of Mind:

    Knowing that your loved ones will be financially secure even in your absence provides peace of mind.

  6. Best for Salaried Individuals:

    Zero cost term plans can be availed by any individual. But these are mostly ideal for salaried individuals with limited disposable income, as they offer life coverage without any financial burden.

  7. Enhanced Financial Planning:

    With no cost term insurance, policyholders can allocate their funds toward other investment avenues, contributing to an overall improved financial planning strategy.

Limitations of Zero Cost Term Plan

Although zero cost plans offer numerous benefits, there are a few limitations that you should be aware of. These are:

  1. Limited Coverage:

    Zero cost term plans may offer limited coverage amounts compared to traditional term insurance plans due to the absence of premium payments. For instance, by paying the same amount of premium in a traditional term life insurance plan, we will be able to have a higher coverage.
    If you don’t wish to opt for a limited life cover and want to secure your family’s financial future till the age of 100 years you can choose a whole life insurance.

  2. No Maturity Benefit:

    Unlike some life insurance plans like ULIPs that provide additional return on the investment component, zero cost term insurance plans do not provide any maturity benefit. They also do not provide any return on investment if the policyholder survives the policy term.

  3. Strict Surrender Policies:

    Exiting a zero cost term plan before the full term may incur penalties or result in the loss of coverage, depending on the policy's terms and conditions.

  4. No Investment Component:

    Zero cost term plans do not have an investment component like the traditional term with Return of Premium (TROP) options like ULIPs. Hence, policyholders do not receive any returns on their premium payments.

Example of No Cost Term Insurance Plan

Here is an example of no-cost term insurance plans offered:

Coverage Amount

Policy Term

Age of Policy Buyer

Premium Payable per Month

Rs. 1 crore

30 years

35 years

Rs. 3,000

Rs. 1 crore

20 years

30 years

Rs. 2,500


We can see from the above example that the policy term is less for younger individuals while providing the same life insurance coverage. As the premium amount is largely affected by the principle of compounding, individuals must start investing as soon as possible. 

Why Should You Consider Purchasing a No-Cost Term Insurance Plan?

Zero cost term Insurance is a compelling option as it offers essential life coverage without any financial burden. It provides a safety net for your loved ones in case of your untimely demise, ensuring they can maintain their lifestyle and financial stability. By opting for a zero cost term plan, you can protect your family's future without compromising on your current financial obligations.

Steps to Purchase Zero Cost Term Insurance 

To purchase zero cost term insurance plans from HDFC Life, follow these steps:

  1. Decide on the coverage amount and policy term that suits your needs.

  2. Visit our website at HDFC Life or contact our customer support to explore the options available.

  3. Go to the ‘Term Insurance’ menu and click on the policy type you want to opt for. 

  4. Select a policy among the given options and click on ‘Explore Plan’. 

  5. In the following page, click on ‘Buy Now’ once you have finalised your decision. 

  6. In the given application form, enter your name, date of birth, contact information and other required details. 

  7. Submit the required documents along with the completed application form.

  8. Pay any necessary fees (if applicable) and complete the necessary verification process to buy a zero cost term plan. 

Keep a copy of all the relevant documents for future reference and follow the instructions provided for policy servicing.

Documents Required to Purchase Zero-Cost Term Insurance

Documents required to purchase zero-cost term insurance are:

  • Identity proof such as an Aadhaar card, PAN card, voter ID, or passport

  • Address proof such as an Aadhaar Card, voter ID, utility bills, or driving licence

  • Income proof such as salary slips, bank statements, or income tax returns (ITR)

  • Age proof such as a birth certificate or school leaving certificate

  • Medical history documents (if applicable)

  • Recent passport-sized photographs

  • Other documents as specified by the insurance company during the application process

Difference between Zero Cost Term Insurance and Return of Premium Plan

Basis of Difference

Zero Cost Term Insurance

Return of Premium Plan

Premium Payment

Premium paid is generally paid back at the time of maturity

Premium payment required throughout the policy term

Maturity Benefit

No maturity benefit

Maturity benefits are provided if the policyholder survives the policy term

Benefit Return

Life coverage only

Life coverage + returns on premium 

Flexibility

Limited flexibility

More flexible options for customisation and riders

Surrender value

Minimal or no surrender value available

Provides a lump sum amount on surrendering the policy (if opted by the policyholder)

Investment component

No investment component

Potential returns on premium payments

Zero Cost Term Insurance or Return of Premium Plan, Which is better?

The choice between zero cost term insurance and a return of premium (ROP) plan depends on your needs and preferences. Zero cost term policies provide life coverage at nominal premiums which are paid back at the time of maturity, making it an attractive cost-free option. On the other hand, ROP plans offer life coverage along with the return on paid premiums, providing a potential investment component. 

Things to Consider before Purchasing a Zero Cost Term Insurance 

A few things to consider before purchasing zero cost term insurance are:

  • Understanding the Policy:

    Thoroughly read and understand the terms and conditions, coverage details, and policy maturity aspects of the zero cost term insurance plan.

  • Coverage Amount:

    Assess your family's financial needs and determine an adequate sum assured amount that can ensure their well-being in case of your absence.

  • Premium Payment:

    While zero cost term insurance does not require premium payments, check if there are any additional charges or fees associated with the plan.

  • Policy Term:

    Consider the duration of the policy term, ensuring that it aligns with your future financial obligations and safety needs.

  • Riders:

    Evaluate if the plan offers any additional riders or add-ons such as critical illness or accidental death benefits that can enhance the coverage and tailor it to your specific requirements.

  • Insurance Company:

    Research and choose a reputable insurance company with a good claims settlement record and a strong financial standing.

Zero cost term insurance is a unique and favourable option for individuals who want to secure life coverage without paying premiums. It offers sufficient coverage while being affordable and offering tax benefits, and flexibility. This makes it an attractive choice for salaried individuals and those looking to get life insurance coverage for their financial plans.

Protect your loved ones' financial future while enjoying peace of mind with a zero cost term plan. Apply for HDFC’s Zero Cost Term Insurance Plan today to take the first step towards securing your family's future.

FAQs on Zero Cost Term Insurance

Q: What is zero cost term insurance?

Zero-cost term insurance refers to a life insurance plan that provides coverage to the policyholder without requiring any premium payments. It offers financial protection without any additional cost.

Q: Is it possible for customers to exit zero cost term insurance at any time?

In some cases, policyholders can exit the zero-cost term insurance plan before the completion of the full term, subject to certain conditions. However, strict surrender policies may result in minimal or no surrender value. Check with your insurer to know more.

Q: What are the tax benefits available under a zero-cost term insurance plan?

Policyholders can enjoy tax benefits under deductions under 80C of the Income Tax Act, for the premium paid towards their zero-cost term insurance plan. The premium amount can be deducted from the taxable income, reducing their overall tax liability. Nominees can receive tax exemptions on the sum assured and accumulated bonus u/s 10 (10D) *.

Q: What is an example of a zero cost term insurance plan? 

An example of a zero-cost term insurance plan could be where a 30-year-old individual purchases a policy with a coverage amount of Rs. 1 crore for a policy term of 20 years without making any additional premium payments.

Q: Is there an additional charge associated with availing a zero-cost plan?

No, there is no additional charge associated with availing of the zero-cost plan. It provides financial protection without any premium payments, making it a cost-effective option.

Q: Do all insurance companies provide zero-cost options?

Not all insurance companies provide zero-cost term insurance options. It is essential to research and compare different insurers to find a suitable zero cost term insurance plan.

Q: Is a zero cost plan similar to the return of a premium plan?

No, zero cost plans and return of premium plans are 2 types of term insurance. Zero-cost term insurance does not require any additional payment, while the return of premium plan requires premium payments throughout the policy term and provides a maturity benefit if the policyholder survives the policy term.

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Francis Rodrigues Francis Rodrigues

Francis Rodrigues has a decade long experience in the insurance sector, and as SVP, E-Commerce and Digital Marketing, HDFC Life, manages the online sales channel, as well as digital and performance marketing. He has had hands-on experience in setting up sales channels and functional teams from scratch over a career spanning 2 decades.

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Vishal Subharwal Vishal Subharwal

Vishal Subharwal heads the Strategy, Marketing, E-Commerce, Digital Business & Sustainability initiatives at HDFC Life. He is responsible for crafting and ensuring successful implementation of the overall organisation strategy.

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*Tax benefits are subject to conditions under Sections 80C, & Section 10(10D) and other provisions of the Income Tax Act, 1961. Tax Laws are subject to change from time to time.

^ Available under Life & Life Plus plan options

#Provided we have received all the relevant and required documents and no further investigation is required. Claim settlement process would be completed within stipulated timelines once the claim request is approved

@As per integrated annual report FY23-24, available on www.hdfclife.com. As of May 2024

##Individual claim settlement ratio by number of policies as per audited annual statistics for FY 23-24

ARN - ED/01/24/8138