What is Zero-Cost Term Insurance plan?

Zero-cost term insurance plans offer a Special Exit Value feature, which allows you to get back all the premiums you’ve paid (excluding GST) and exit the plan when your financial obligations are no longer needed. This option is available to you once you turn certain years old (depends on the policy). And the best part is, there is no extra cost for this benefit.

For Example :

Let’s say you buy a Zero-Cost Term Insurance Plan when you're 30 years old. You pay premiums for the next 28 years, and when you turn 58, your children are financially independent, and you no longer have major financial responsibilities.

At that point, you can choose to exit the plan and get back the premiums you've paid over the years, minus the GST. So, if you paid a total of ₹5,00,000 in premiums, you could receive ₹5,00,000 (minus the GST amount). You can do all this without paying any additional charges for this exit benefit.

Should you consider buying Zero-cost term insurance plan? Let's find out

So there is a minimum age (usually it is higher than 60 year age) for zero-cost term plan eligibility. Let's say if you want to buy a term plan till you turn 60, But the zero-cost option is offered at minimum coverage age of 73. Then the premium you have to pay would be higher. Just because you the have the option of getting back your premiums, you shouldn't opt for higher premium and take coverage for more years. Please check the below example.

Let's say Mr.X is 30 years old and is salaried, bought a Zero-Cost Term plan for Rs. 1 Cr coverage in Max Life. As on Dec'24, the zero-cost term plan would cost him Rs. 17,977 per annum and coverage age is 73 (If 73 is minimum age for zero cost term plan and suggested age is 60). Let's say he is planning to withdraw from the plan at the age of 60 (when he thinks his dependents are well off at that point), he will get the paid premiums back i.e. Rs. Rs. 17,977 * 39 years = Rs. 5,39,310.

Instead If he purchases normal Term plan for 60 years. which would cost him Rs. 13,004 per annum. The difference amount i.e. Rs. 4,973, he invests in FD/Gold/MF/Stocks. even if I assume minimum of 8% rate of return (FD). At the age of 60 he would have a corpus of Rs. 6,08,426. which is much higher than above zero-cost policy. 

Summary : 

If you want to take a term plan for a coverage age around 60, Please avoid Zero-cost term insurance plans. If you genuinely want to take the policy around the age 73 (or more than the minimum age requirement for zero cost term plan) , then it is good. 

For younger ones, it minimum age would be around 65 so premiums difference won't be much higher, it might be a good a option to take zero-cost term plan by stretching a bit.  It all depends on the math, so choose wisely.

Please find the calculation here, you can change the calculation as per your requirements : 

Best Term Insurance Plans available in India for 2025.

• Max Life Smart Secure Plus
• Tata AIA Maha Raksha Supreme
• Bajaj Allianz Smart Protect Goal
• ICICI Prudential iProtect Smart

Thanks,

Honvest Team.