Can I Transfer My Existing Pure-Term Policy to A 100% Refund of Premium at No-Cost Term Plan?

Policyholders reassessing their insurance needs over time has become a common sight. There may be several reasons to reassess your insurance needs. It may be your financial status, changes in your family composition, or a simple shift in priorities. Thus, readjusting your insurance plans after careful reassessment is not a bad idea.

One of the most common shifts amongst policyholders is the transition from a pure-term insurance policy to a 100% refund of premium, no-cost term plan. Learning more about such transitions will be a good idea if you are considering doing the same.

What Is A Pure Term Insurance Plan?

There are different types of life insurance plans in the market. The term insurance is one of the most common forms of life insurance. You will not be wrong in thinking that a term plan is the best policy you can gift your family because it is a pure protection plan.

A pure-term insurance plan is a contract or an agreement between the policyholder and his insurance provider or the insurer. According to this agreement, the insurance company is bound to provide a lump sum amount to your family after your untimely demise. The normal tenure of a term policy ranges from 10 years to 50 years.

What Are The Benefits Of A Pure Term Insurance Policy?

You can enjoy three key benefits if you hold a pure-term insurance policy.

• Tax Benefits

A pure-term insurance policy enables you to enjoy tax exemptions on the premium that you pay at regular intervals towards the policy. This is possible u/s 10(10D) and u/s 80C of the IT Act 1961.

• Death Benefit

During the event of your untimely demise, the person whose name is mentioned as the nominee will receive the death benefit or the sum assured.

• Low Premium and High Coverage

You will notice that a pure-term insurance policy offers high coverage at a low premium rate if you compare it with other life insurance plans.

What Is A No-Cost, 100% Refund Of Premium Term Plan?

A refund of premium (ROP) term plan is like any other regular term life policy. However, there is one huge difference between the two that sets them apart. The ROP term life plan returns your premiums once the policy period ends and the plan matures. This amount is also known as the survival benefit. Accordingly, if you outlive the policy term, your insurance company will refund 100% of your premium amount. This will be a tax-free amount that you can use for any other important thing.

If you think a return of premium term plan is practically a zero-cost life insurance policy, you will not be wrong. It also offers far-reaching financial benefits. For instance, the policy nominee will receive the death benefit upon your death during the term. This is the predetermined sum for which you paid the premiums.

What Are the Benefits of a No-Cost, 100% Refund of Premium Term Plan?

You receive some useful benefits when you choose a 100% refund of premiums term insurance plan. These benefits are discussed below.

• Premium Amount Refunded

The primary benefit you receive with a 100% refund of premium term life insurance is a total refund of the premium amount you paid during the entire tenure of the policy. However, the necessary clause for such a refund requires you to outlive the policy maturity date.

• Get a Lump Sum as Your Life’s Savings

If you can survive the policy term, the amount that you receive will be your life’s savings. You can use this money for further investments or take care of your retirement needs.

• Safeguard against Mishaps

During the policy’s term period, if you are diagnosed with any terminal illness, a 100% refund of the premium term plan can be your saviour. In other words, if your policy comes with a terminal illness feature, your insurance provider will consider the policy as complete and return all the amount to your family. You can use this money to get necessary medical assistance. However, you need to ensure that you never miss paying a single premium if you want to get the full sum assured.

• Get the Financial Security You Need

A 100% refund of the premium term policy can also act as your financial security during your death before maturity. During such situations, your insurance provider will pay the entire sum assured to the nominee and terminate the policy.

• Save Tax

The premiums that you pay towards your 100% refund of premium term life policy can help you save tax up to a maximum of 1.5 lahks per year u/s 80C of the IT Act 1961. Additionally, you do not have to pay any taxes on the policy payout during maturity u/s 10 (10D).

Difference between Pure Term And 100% Refund Of Premium Term Policies

Can I Transfer My Existing Pure Term Policy To A 100% Refund Of Premium At No Cost Term Plan?

Transfer of this nature is not possible under any circumstances. The simple reason behind this is the nature of term life insurance policies. These policies are long-term agreements that you cannot transfer after the policy starts. The only solution is to cancel or surrender your ongoing pure-term policy and choose a 100% refund of the premium policy.

However, surrendering your existing pure-term plan may make you lose some money. Thus, the best solution is to let your term policy continue as it is and choose an additional refund of the premium term plan. You must remember here that the premium rate of a refund of a premium term plan will be higher than a regular term plan. In other words, for the same sum assured, you need to pay a higher premium rate under the return of the premium plan.

Conclusion

Navigating the transition from a pure-term policy to a 100% refund of a premium term plan can seem daunting. There’s no simple ‘switch’ button; the journey entails stopping your existing plan and buying a new one. The allure of a premium refund if you live past the policy term, is appealing. Yet, it’s crucial to measure this against potential increases in premiums, surrender charges, health reassessment needs, and reset waiting periods.

These factors could affect the overall value of your policy. Hence, it’s wise to take counsel from a financial advisor or insurance expert. They can help you thoroughly understand your options, factoring in your specific circumstances, financial goals, and risk appetite. In the end, this will empower you to make the most appropriate choice for your life insurance coverage.

FAQs

• Can I directly transfer my pure term policy to a 100% refund of the premium term policy?

No, there’s no direct ‘transfer’ mechanism in place. The typical route involves discontinuing your existing pure-term plan and purchasing a new 100% refund of the premium term plan.

• Will the premiums for my new policy be higher?

Generally, yes. Premiums for a 100% refund of a premium term policy are typically higher than those of a pure term policy, given the return of the premium feature.

• What happens to my premiums if I cancel my policy before the term ends?

You typically don’t receive any returns upon cancellation for a pure-term policy. With a 100% refund of the premium term policy, some portion of the premiums might be returned based on the terms and conditions.

1. Do I get any benefits if I survive at the end of the term?

In a pure-term policy, there are no maturity benefits. However, with a 100% refund of the premium term policy, you receive a return of the total premiums paid if you outlive the policy term.

• Will I need to undergo a new health assessment if I decide to buy a new policy?

When you apply for a new policy, insurers typically reassess your insurability, including a review of your health status.

• Is there a waiting period before the benefits of my new 100% refund of premium term policy kick in?

Yes, most insurance policies do have certain waiting periods for specific conditions to be covered. When you purchase a new policy, these waiting periods reset, which means certain conditions may not be immediately covered under the new policy.