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

Written by : Knowledge Centre Team

2026-07-08

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11 minutes read

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A term plan is the simplest form of life insurance policy available in India. It is a pure risk coverage policy that provides maximum security at minimum cost. Although there is no savings component or maturity benefit, the life cover provides protection for policyholders. The premium for this policy depends on several factors, including the sum assured, the applicant's age, and the policy term.

That said, not all term plans come without a maturity benefit. There are a few term plans that return the premiums paid. A zero-cost term plan is one such type; it returns the premium paid by the policyholder even if they survive the policy term or exit early, subject to certain terms and conditions

Let us understand zero-cost term plans in detail.

What is a Zero-Cost Term Insurance Plan?

A zero-cost term insurance plan is a specialised plan structured to refund your entire base premium if you survive the coverage period or choose to terminate the policy at a predetermined age. It serves as an ideal middle ground for individuals who require robust financial security for their loved ones but prefer a safety net ensuring their money is recovered if the protection goes unused. By providing a clear exit path to reclaim your paid premiums once the coverage is no longer necessary, this plan effectively bridges the gap between pure life protection and a desire for premium recovery.

There are two types of zero-cost term plans:

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

Term Plan With Return of Premium (TROP):

Term plans with return of premium will refund all premiums the policyholder paid throughout the policy term, provided the policyholder survives the entire policy term. In the case of the policyholder's demise before the end of the policy term, the return of premium option lapses and the plan pays out the death benefit to the nominee, working like a normal term plan.

Term Plan With Special Exit Value:

Under the Special Exit Value option in a 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

This option is particularly useful for policyholders who no longer need life cover post-retirement. 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.

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Features of a Zero-Cost Term Plan

While the plan offers all the basic features of a standard term plan, it also ensures the premiums paid are not lost. It is either returned upon surviving the full policy term or upon a qualifying early exit, depending on the plan variant chosen.

Some standard features of this plan are:

Offers life insurance coverage for a specific policy period
Provides a death benefit to the nominee in case of the policyholder's demise during the policy term
The premiums paid are returned to the policyholder upon survival of the full term or qualifying early exit, subject to plan conditions
Premium payment options typically include single pay, limited pay, and regular pay modes
Most zero-cost term insurance plans allow riders such as critical illness cover, accidental death benefit, and waiver of premium, which can be added for enhanced protection
The policyholder may have the flexibility to choose between lump sum and income-based payout options for the death benefit
Tax benefits are available on premiums paid under Section 123 of the Income Tax Act 2025 (previously 80C under the Income Tax Act 1961), and the death benefit received by the nominee is exempt under Schedule II (Table S.No. 2) (which was previously called Section 10(10D) of the Income Tax Act 1961).

Benefits of Buying Zero-Cost Term Plans

A no-cost term insurance offers the dual advantage of financial protection and premium recovery, making it a compelling choice for cost-conscious policyholders

Provides an affordable safety net for policyholders who 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 returned can be reinvested to generate income in retirement.

How to Buy Zero-Cost Term Insurance?

Buying a zero-cost term insurance policy involves a few key decisions beyond just selecting a policy. Here is a step-by-step guide to help you get started:

Choose the Right Insurer: It is important to choose an insurer with a good claim settlement ratio. We at Canara HSBC Life Insurance are proud to have recorded a claim settlement ratio of 99.52%^ for FY 25-26.
Select the Sum Assured: It 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 keep the policy active for 2-3 years beyond retirement age
Pay the Premium: The premium can be paid through different modes such as online, offline, or NACH (National Automated Clearing House)

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

Zero-Cost Term Insurance vs Regular Term Plan: Key Differences

Both zero-cost term insurance and regular term plans provide life cover, but they differ significantly in structure, cost, and what happens at the end of the policy term. Here is a quick comparison:

Feature	Zero-Cost Term Plan	Regular Term Plan
Premium Amount	Higher	Lower
Death Benefit	Yes	Yes
Premium Refund on Survival	Yes (subject to conditions)	No
Early Exit Benefit	Available (Special Exit Value variant)	Not available
Ideal For	Those who want premium recovery	Those who want maximum cover at the lowest cost
Policy Tenure	Long-term (typically 40+ years for Special Exit Value)	Flexible
Tax Benefit on Premium	Yes, under Section 123 of the Income Tax Act 2025 (previously 80C)	Yes, under Section 123 of the Income Tax Act 2025 (previously 80C)

Now that you know the difference between a zero-cost term plan and a term plan with a return of premium, you will find it easier to buy the right one for 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.

Conclusion

A zero-cost term insurance plan is a smart option for those who want the security of a term plan without the concern of losing their premiums if they outlive the policy. Whether you opt for a Term Plan with Return of Premium or a plan with Special Exit Value, the core benefit remains the same: your family is protected during the policy term, and your money is not lost at the end of it.

When choosing a zero-cost term plan, focus on the sum assured, policy tenure, claim settlement ratio of the insurer, and the specific exit conditions attached to the plan. Comparing your options carefully will help you find a low-cost term insurance plan that aligns with both your protection needs and long-term financial goals.

FAQs

A zero-cost term insurance plan works by ensuring that your premiums are not lost regardless of the outcome. If the policyholder passes away during the policy term, the nominee receives the death benefit. If the policyholder survives or exits the plan after meeting specific conditions, all paid premiums are returned. This makes it a "zero cost" proposition in the long run.

The two types of zero-cost term plans are Term Plan with Return of Premium (TROP), where premiums are returned on surviving the full policy term, and Term Plan with Special Exit Value, where premiums are returned if the policyholder exits the plan after meeting specific age and tenure conditions.

Special exit value in term insurance is a feature that allows the policyholder to exit the plan before the full policy term and receive all paid premiums back, provided they meet the eligibility conditions, typically attaining 65 years of age and completing a minimum number of policy years.

You can avail the special exit value on your term plan after attaining 65 years of age, and after completing the 25th policy year for a policy term of 40-44 years, or after the 30th policy year for a policy term exceeding 44 years.

No, zero-cost term insurance is not free. The premiums for these plans are generally higher than those for a regular term plan. The "zero cost" refers to the fact that if no claim is made, the policyholder gets all paid premiums back, making the net cost of coverage effectively nil in that scenario.

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.

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