What Is Zero Cost Term Insurance and How Does It Work?

Written by : Knowledge Centre Team

2026-01-03

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11 minutes read

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Term plan is the simplest form of life insurance policy. This is a pure risk coverage policy that provides maximum security at minimum cost. Although there is no savings component and maturity benefit, the life cover provides protection to the policyholders. The premium amount of this policy depend a lot of factors including the sum assured, age of the applicant and term of the policy.

There is no maturity benefits associated with the plan. However, there are a few term plans that return the premiums paid. Zero cost term plan is one such type of plan that returns the premium paid by the policyholder on certain terms and conditions.

Let us understand zero cost term plans in detail.

What is Zero-Cost Term Plan?

Zero-cost term plan means that if the policyholder passes away during the term of the policy, beneficiaries will receive the death benefit. But, it also means that if they live to the end of the term, beneficiaries will receive all of the premiums back. There are two types of zero-cost term plans:

Term plan with Return of Premium
Term plan with Special Exit Value

1. Term Plan with Return of Premium (TROP)

Term plans with the return of premium will return all the premiums the policyholder paid throughout the policy term. However, return of premium option stays in force only if the policyholder survives the policy term. The plan will work like a normal term plan in the case of the policyholder’s demise before the end of the policy term.

2. Term Plan with Special Exit Value

Under the Special Exit Value option of the term plan, the policyholder will receive all the paid premiums back if they decide to surrender the policy after:

Attaining 65 years of age, and
After the 25th policy year for a policy with a total term of 40-44 years, or
After the 30th policy year for a policy with a total term exceeding 44 years

Thus, a special exit value gives you the option to continue the term cover or exit the plan at your convenience after completing a minimum policy term.

Features of a Zero-Cost Term Plan

While the plan offers all the base features of a normal term plan, it returns all the premiums when the policyholder exits the plan before the term completion.

Some standard features of this plan are:

Offers life insurance coverage for a specific period
The premiums paid are returned upon exit of the policyholder

Canara HSBC Life Insurance iSelect Smart360 Term Plan has a Special Exit Value along with following additional features:

Life cover until you attain the age of 99 years
Future premium payments would be waived off on diagnosis of listed critical illnesses or accidental total & permanent disability.
Flexibility of exiting the policy after retirement
You can opt for an additional lumpsum amount for critical illness, accidental total & permanent disability or accidental death.
Child Care Benefit of an additional Sum Assured till the child attains 21 Years of age
Block your Premium option and cover enhancement up to 100% in the next 5 years from the commencement of the policy
Accelerated terminal illness benefit provides a sum assured of up to Rs 2 crore out of the total death benefit available under the plan if you are diagnosed with a terminal disease.
Tax benefits under section 80C for the premium payments

Benefits of Buying Zero-Cost Term Plans

Provides an affordable safety net for the policyholders if they outlive their life insurance policy.
Provides additional funds at retirement as the premiums will be returned if you do not make a
claim on the policy and survive the policy term.
It can be used as an investment tool, as the money that is returned can be reinvested and used to generate an income in retirement.

How to Buy Zero-Cost Term Insurance?

Steps to buying zero cost term-insurance:

Choose the Right Insurer: It is important to choose an insurer with a good claim settlement ratio. Canara HSBC Life Insurance has a claim settlement ratio of 99.43%^ for FY 24-25.
Select the Sum Assured: The sum assured should be at least 10 times your annual income.
Choose the Policy Term: The policy should continue at least until your retirement, though it is better to continue the policy for 2-3 years more than retirement age.
Pay the Premium: The premium can be paid through different modes such as online, offline or ECS. If you are selecting a policy term which extends the policy after 60 years of age, you can opt for the pay-till-60 option.

Now that you know the difference between zero cost term plan and term plan with return of premium, you will find it easier to buy the right one as per your protection goals. A term life insurance plan will be the ultimate cushion providing for your family in the event of your untimely death. Thus, it is an integral part of your contingency plan.

Disclaimer - This article is issued in the general public interest and meant for general information purposes only. The views expressed in this blog are solely those of the writer and do not necessarily reflect the official policy or position of Canara HSBC Life Insurance Company Limited or any affiliated entity. We make no representations or warranties of any kind, express or implied, about the completeness, accuracy, reliability, suitability, or availability with respect to the blog or the information, products, services, or related graphics contained in the blog for any purpose. Any reliance you place on such information is therefore strictly at your own risk. You should consult with a qualified professional regarding your specific circumstances before taking any action based on the content provided herein.