Are you considering taking out insurance? No-cost term plans tick all the right boxes for you

The insurance industry in India is constantly seeking to innovate and introduce new products that are more attractive to investors. “Forward plans” and “forward premium returns” are probably familiar to everyone. The term ‘free term insurance plansrefers to a new category of term plans that life insurers have recently added.

Now, with the success of long-range plans over the past few years, we are all well aware of its functions. It is basically a plan where policyholders purchase a plan for 30 to 40 years and pay premiums for the full term. In the event of an unfortunate death, the insurance companies will pay out the family sum insured and the policy will cease.

If the policyholder survives after their coverage period, they receive nothing from the insurance companies. However, the Indians did not just buy such products as they are used to getting a certain sum at the end of the insurance period.

To fill this gap, insurance companies bought forward yields of prime plans (TROP), where policyholders will get their premiums back after the policy term ends. To give an example, if a thirtysomething buys TOO MUCH and has an insured sum of ₹1 crore for a period of 40 years, paying premiums of ₹30,000 per year. If he dies during the term of the contract, the family will receive ₹1 crore, but if he survives the 40-year period of insurance, the insurance companies will pay him the premiums paid over the 40-year period.

But here’s the catch, TROP’s premiums are way higher than pure term plans and that’s why it hasn’t seen the success the insurance industry envisioned.

But now, the life insurer players have further tweaked the term insurance plans into zero cost term insurance plans. Thus, these plans are a mixture of pure term plans and TROPs. Here we will try to explain with a small example.

Let’s say a 30 year old buys a term plan at no cost for a period of 40 years, he will have an exit option at 25 years or 30 years. Once out, he will collect the bonuses (excluding taxes). The duration of the exit option varies from insurer to insurer. Again, here too, if the insured dies during the term of the policy, their family will receive the full insured amount.

One of the main advantages of zero cost term insurance plans is that their premiums are quite attractive compared to TROP. So it is better to opt for zero cost term insurance plans over TROPs.

The basic principle of purchasing this policy is that policyholders can discontinue the plan if they feel they do not need life cover. This may be due to having enough savings for retirement or even needing money after retirement.

Unfortunately, in India, many people still avoid buying pure term plans because they offer no benefit at maturity. Zero-cost term plans may be the best product category for people who want their money back or have no more liabilities and premiums are lower than TROPs.

That said, this is just the beginning of zero term insurance plans and the market is at a very nascent stage. Not all insurance companies offer such products, but if the current product proves successful, we could see more players jump in and launch zero-cost term insurance plans.

I would say that before buying term or zero cost insurance plans term insurance plans, policyholders should compare premiums, features, customer services and claims payout ratio before buying life insurance products. Purchasing term insurance plans or any of the other two categories is a must for every adult in India, so that the family can be secure in the absence of the policyholders.

Rakesh Goyal is the director of Probus Insurancean InsurTech brokerage firm selling life and non-life insurance policies.