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A lot of the time a person buys a term plan and later on with the changes in life stage wishes to make changes in the insurance plan. While this feature of changing policy benefits might be possible in some plans like convertible term plans, transferring a pure term plan into a 100% refund of premium plan is not possible. Let us see what the difference is between the two plans and why you can’t transfer your pure term plans into a no-cost term plan.
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Note: Know more about what is term insurance first before reading this article.
A pure-term plan is a type of life insurance policy that provides financial protection to the policyholder’s family in case of the policyholder’s unfortunate death. These plans do not provide any benefit amount in case the policyholder outlives the policy term. A 100% refund of premium at no-cost term plan pays the applicable death benefit on death during the policy term and in case the policyholder wishes to terminate the plan early, they can do so within a specific period provided by the insurer and can receive all the premiums paid back.
Term Plans
Let us see the difference between both, pure term insurance plans and no-cost term plans.
| Pure-term Plans | 100% Refund of Premium at No Cost Term Plan |
| The sum assured on death is paid on the unfortunate death during the policy term | The sum assured on death is payable on the death of the policyholder during the policy term |
| On maturity of the policy, if the policyholder outlives the policy tenure no benefit is payable | On maturity of the policy term, no benefit is payable if the policyholder outlives the policy tenure |
| The policyholder cannot cancel the policy midway and receive all the premiums paid | The policyholder can surrender the policy within a certain time frame as specified by the insurer and receive all the premiums paid until that point |
| There is no return or refund of premiums at any point during or after the policy term | The premiums refunded are subject to GST and other nominal deductions |
| The premiums for pure term plans are highly affordable compared to the other types of term plans | The premium rates are slightly higher than the pure-term plans |
Note: You can easily calculate the term plan premium by using the term insurance calculator online tool.
You cannot transfer your existing term insurance plan into a 100% refund of premium plan midway through a plan. This is because insurance plans are long-term contracts that cannot be transferred once bought. Therefore if you want to receive your premiums at the end of the policy, you can either cancel or surrender your existing pure-term plan and purchase a new 100% refund of premium plan. Although it is better to let the previous pure-term plan continue as additional coverage and buy a new no-cost term plan.
This is because even though the no-cost term plan offers all the premiums on the cancellation of the policy at no additional cost, these plans usually have a higher premium rate than regular pure-term plans. This means for the same sum assured, the premiums of 100% refund of premium plans will be higher than the regular term insurance plans.
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Yes, you can buy and hold two or more term insurance plans at the same time. You can buy multiple term insurance policies to extend the coverage of your plans as per your increasing life stages. At the time you bought the first term insurance your eligibility for the maximum cover might have been lower but as you grow older in life, your needs and annual income might increase as well. Thus, you can buy another term plan to fit your new needs as per the new maximum coverage you are eligible for. You can calculate the maximum life cover you can purchase a term plan, using a human life value calculator.
There are several benefits of buying two term insurance policies in India. Some of them are:
Higher Probability of Claim Approval: Buying term insurance plans from two or more different insurers can increase the probability of claim approval. This way in case the claim from one term plan is rejected, your family can still receive the death benefit from the other term plan. Before buying term life insurance you should always compare the CSR values of different insurers and purchase the most suitable plan from the insurance company with the highest CSR value. This is because a company with a high claim settlement ratio has a better chance of settling your family’s claim.
Larger Life Cover: Two term insurance plans will provide a large life cover in case of the death of the policyholder. The payout from both the term plans can help your family pay their monthly bills, child’s fees, rent, and other financial obligations like loans and debts.
New and updated Features: Term insurance plans are always updating their policy benefits and terms. For example, if you bought a pure term plan at the age of 20 and wanted to buy the 100% refund of premium plans at the age of 30, you could buy the new plan and still stay covered under the old plan. This way you can keep your previous pure term plan active and purchase a new no-cost term plan and exit the plan as per your needs.
Changes in Life Stages: As your life stages change, your coverage needs might change as well. In case you purchased a term plan early on, when you had no financial dependants and after a few years you now have a spouse and kids, the sum assured from your first policy might not be enough to cover the financial needs of your family. Thus a new term plan can help your family fulfill their financial obligations in your absence like paying the outstanding loans or child’s higher education.
Additional Rider Coverage: Having two term plans can increase your overall rider coverage sum assured as well. So for example, if you had a critical illness rider from one plan for Rs. 50 Lacs, you can opt for a critical illness rider benefit of Rs. 75 Lacs in the new term plan. This way on the diagnosis of a critical illness, you can claim a total of Rs. 1.25 Crores using the rider benefits from both plans.
Since it is not possible to convert a term plan into a no-cost term plan you can buy a new 100% refund of premium plan by submitting the following documents:
Income Proof
Identity Proof
Medical Report, and
Residence Proof
A pure term plan protects your loved ones from the financial obligations they might be burdened with in your absence at budget-friendly prices. While a 100% refund of premium at no-cost term plan does the same, the premiums are slightly higher due to the option of exiting the plan midway and receiving the premiums paid. Both plans have their own benefits and thus it is suggested that you go through the benefits of both plans before deciding on the most suitable term plan.
Note: Check out the best term insurance plan in India and choose one that suits your requirements.
†Policybazaar does not endorse, rate or recommend any particular insurer or insurance product offered by any insurer. This list of plans listed here comprise of insurance products offered by all the insurance partners of Policybazaar. For a complete list of insurers in India refer to the Insurance Regulatory and Development Authority of India website, www.irdai.gov.in
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