Finance

Is Term Insurance Investment Or Expense?

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Term Insurance is not same as any other investment as it does not give you any returns on your investment like Mutual funds, but does this mean that Term insurance is an expense? Let’s check out.

So, what is a term insurance plan?

A term insurance plan provides life coverage to the insured for a specific term for say 5 years, 10 years or 15 years. If the policyholder dies during the policy term the family gets the assured sum as a death benefit. For instance, if you take a policy for a term period of 15 years for a sum assured of 50 lakhs you need to keep paying premiums for 15 years but in case death occurs the family gets the entire death benefit of 50 lakhs.

But if you live the policy term, you do not get any survival benefit although you can extend the policy term and the family gets the sum assured if death occurs.

Here are a few pointers that the Investors think before investing in the plan:

  • What if I outlive the policy term.
  • Paying premiums every year without the possibility of getting any amount back.
  • To safeguard the future, one can invest in fixed deposit and mutual funds and earn interest on the invested amount.
  • It’s pessimistic to think about early death.

But what term insurance in reality is?

Term Insurance Plan Is An Investment In Security: One doesn’t invest in term plans to get returns but ensure financial security for the family. You provide financial safety to the family during your absence especially those who are dependent on you for their finances. So, term insurance plans help give mental peace that your family will be financially stable during your absence.

Premium amount Vs Returns: The premiums you pay for the term insurance plans are too low compared to the assured sum that you get. So, in case if you outlive the plans you won’t be bearing a huge loss, moreover you have the option to extend the policy term.

Fixed Deposit vs term insurance plan: The fixed deposit may sound to be more feasible at this point of time but the maturity amount in a fixed deposit does not factor in the inflation. While Term insurance is a low-cost high return investment.

Future is not predictable: It is easy to predict the future, though it may sound pessimistic, but no one knows about their death. Having a term plan would at least help the family to a life free from any financial burden.

Financial independence for the family: The family can independently choose how to use the amount received. They can utilise the amount as per their needs such as for education or paying off any debts or use it for daily expenses.

The plans also offer different pay-out options where one can either get a lump sum or get a fixed amount while the remaining amount would be paid in fixed intervals.

So, having a Term insurance plan is more of a benefit than an expense as it assures the family’s financial stability.

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