Insurance has a newfound significance in the post-pandemic world. Especially, there’s a collective realisation that life insurance is the bedrock of all investments and overall financial planning. With greater awareness around the uncertainty of life and the consequences that it entails, the life insurance industry is witnessing an increased demand from consumers. Therefore, new products are making their way into the market that effectively cater to the evolving consumer needs and their dynamic behaviour.
Often, affordability is a critical factor that influences the policyholder’s decision. Not just that, consumers also wonder about the relevance of term insurance once their financial obligations are done with. To help this large segment with their term insurance needs, there’s a new category of term insurance available now, called zero-cost term insurance.
Under these plans, the policyholder has the one-time option to surrender the policy when their responsibilities are over and get all the paid premiums back excluding GST.
Powerful innovation to term insurance
What makes most potential buyers procrastinate their term insurance purchase is the question that if nothing untoward happens to them, the premiums still go down the drain. This thought pushes their decision until it’s too late. This is where zero cost term plan comes to their rescue. It effectively lets them keep their life cover all throughout the course of their working years and keeps their families financially protected in case of an unfortunate incident. On the other hand, as the policyholder makes it to their retirement period, the financial dependency tends to reduce significantly or goes away altogether. This is when they can exercise the option to surrender their policy and get all the paid premiums back net of GST. The exit option is a welcome choice that empowers the consumer to take a call basis their own financial situation and stage of life, instead of following a blanket rule.
How Zero Cost differs from TROP
Often, consumers wonder if the zero-cost term plan is the same as the term return-of-premium plan (TROP). Let’s understand the different categories of term plans to get a clearer picture –
- Under regular term plans, if the policyholder dies during the policy term, their nominee is entitled to receive the sum assured. If the policyholder survives the term, no maturity amount shall be paid out.
- Under TROP, if the policyholder passes away during the policy term, their nominee will be paid the sum assured. Also, the sum of all premiums will be returned upon the maturity of the policy in case they survive the policy term. These plans are likely to cost 1.8x or 2x as much as the regular term plans.
- Now comes the third and newest category of zero-cost term plans. Under these plans too, the sum assured is paid out to the nominee in the event of the death of the policyholder. However, what sets them apart is that they are as affordable as the regular term plans. Also, the choice to exit the policy rests solely with the policyholder and they don’t have to wait until the policy ends. These plans are eligible for customers under 45 years of age.
Catalysing term insurance penetration in India
In a nutshell, term insurance is no longer an option but a necessity, especially in a country like India where people can’t rely on a social security system for cushion. With uncertainties on the rise, it’s essential that your family doesn’t bear the brunt of financial adversities, even in your absence. It’s a widely known fact that term insurance needs evolve as per your age and stage of life.
The introduction of zero-cost term plans will help catalyse the term insurance penetration in India with its innovative features, catering to every kind of customer. The plans give better flexibility and control over one’s term insurance to the policyholder, thereby making it a compelling purchase and help narrow down India’s protection gap.
(By Rhishabh Garg, Head – Term Life Insurance, Policybazaar.com)