Return of Premium V/s Zero Cost Term Plan : Which is better?

How nice it would be if you could eat your cake and have it too, wouldn’t it?

Unfortunately, that does not apply to your term insurance policy. As a pure protection product, it provides your family financial support only in case you are no more. But if you survive the policy term, you do not get anything in return. The good thing is that you are still alive and living. Congratulations!

The bad news is that all your premiums paid towards your term insurance (seemingly) got wasted. 

But what if you enjoy the benefits of a term plan while you keep the policy running and also get all your premiums back at the end if you are still alive? 

Your Term Plan Options

Yes, you can have a term insurance plan which gives you all your premiums back if you don’t make any claim during the cover duration. This means that you enjoy the risk coverage during the time you pay your premiums, and on top of that your premiums are returned back to you if you are still alive and your family does not make a claim.

There are two ways in which you can do this.

1. Return of Premium Plan
2. Zero Cost Term Plan

Return of Premium (ROP)

Almost all term insurance plans in India give you an option to choose the return of premium plan. If you choose this option while buying your term insurance policy, your insurance company returns all your premiums back to you at the end of your policy term in case you are still alive.

You can choose this option only at the start of the policy and it comes with an extra cost. The yearly premiums which you pay for return of premium term plan are almost double of what you pay for a regular term plan with no return of premium option.

Yet, this is an option for those who feel that they should at least get their premiums back if they do not claim any other benefit out of their term plan.

Zero Cost Term Plan

If you too think this way, there is one more option available to you now in India which is the zero cost term plan. Under zero cost term plans, you keep paying your premiums for your regular term plan and keep the policy running. Later during the policy term, if you feel that you do not need your term coverage anymore, you get the option to close your policy early and get all your premiums back. Woah!

Most of the popular term plans in India provide this option to their policyholders these days. So you can buy a regular term plan without any added cost and enjoy the benefits of return of premium option at the same time.

Benefits of Zero Cost Term Plan

Zero cost term plans come with some conditions if you want to get your premiums back.

1. You should have a policy with a long policy term such as a minimum of 30 or 35 years.
2. Return of premium option becomes available to you only after you complete a certain number of years in the policy such as 25 or 30 years.
3. You should have 5 or more years left in the policy to claim this option.
4. Return of premium is not a default condition under these plans. To avail this benefit, you have to write to your insurer saying that you want to avail this option when you meet all other eligibility criteria.
5. If you do not avail this option during the stipulated time period and keep paying your premiums, your policy continues till expiry and you do not get any benefit at maturity if you are still alive.

However, zero cost term plan is a great option to have because

1. It does not come at any extra cost. You pay the premium of a regular term plan.
2. You have the flexibility to decide later in the policy if you wish to avail this option. 
3. Almost all regular term plans now offer this feature.

A zero cost term plan is definitely a much better and efficient option if you want your term plan to come with the return of premium option. 

So now you can have your cake and eat it too!

Summary

If you want your term insurance policy to give you a return of premium option, go for a zero cost term plan. In a zero cost term plan, you have the option to get all the premiums you paid to the insurance company back if you meet certain conditions. And unlike the return of premium option, a zero cost term plan comes with no extra cost.

Key Takeaways

1. Your term insurance policy is a pure protection plan which covers the risk of death and protects your family financially after your demise.
2. However, the downside is that you do not get anything in return from your term policy if you survive the policy term.
3. Hence insurance companies give you the option of choosing the return of premium option which returns all your premiums at maturity in case you survive the policy term.
4. This return of premium option is expensive and inefficient as it comes at an extra cost.
5. These days, most life insurers are offering zero cost term plans which is a great alternative.
6. A zero cost term plan gives you an option to close your term policy early and get all your premiums back. This option is only available in policies with longer policy terms which meet certain other policy duration conditions.
7. But with all its limitations, a zero cost term plan is a great alternative to the return of premium term plan as it comes at no extra cost and is more efficient.