Is Term Insurance an Investment or an Expense?

Is Term Insurance an Investment or an Expense?

It is often debated whether Term insurance is an investment or an expense. Several people consider it to be an expense as it is a non-essential expenditure. And think that it does not provide any further benefit. But term insurance investment is an expenditure that helps secure our future. A term insurance plan is a specific type of life insurance policy that provides protection for a definite period of time or 'term'. In the event of the unfortunate demise of the insured person during the specified term, the insurance company pays the beneficiaries of the insured a pre-determined sum of money. It is also a must for every household in people of every age. Read further to understand how term insurance plans are actually an investment.

What are Term Insurance Plans?

Term Insurance Plans are common insurance policies where the nominee receives monetary returns and benefits in case of the policyholder’s sad demise during the policy term. Term life insurance is the most practical way to help protect your loved ones financially in your absence. Generally, the policy term for term life insurances is for maximum 10 or 20 years. However, some term plans do provide cover up to the policyholder’s age of 99 years.

Term life insurance is cost-effective, and you can get the benefit of a high assured sum at a nominal premium. Usually, term insurance policies don’t provide any maturity benefits for the premiums paid by you at the term-end. However, several new term insurance plans have a return of premium option. By investing in those, you can receive the entire premium amount you paid as a repayment upon maturity.

Term Insurance Investment Advantages

Term insurance plans are one of the most basic financial necessities of life, especially for a single earning member of the family. It also has multiple features and benefits, ranging from affordable premiums to riders for additional covers. Given below are some of the important advantages of term plans you must know.

Affordable Premiums

You can get a high assured sum from a term insurance plan. That too at affordable premium amounts compared to other types of life insurance plans. These premium payments are monthly, quarterly, bi-annual, or annual. The earlier you purchase a term insurance plan lower the premium you need to pay.

High Sum Assured

In case of the sad demise or even an unfortunate accident of the person insured, the family members will receive the Assured Sum. Policyholders can choose this payout as a lump sum amount or an income receivable periodically. It will help provide for the financial needs of dependents, household expenses, and other costs of living.

Policy Premium Payment

If the investor passes away before paying all of the premiums, the entire weight of the premium payments can fall on their dependents. However, in term insurances, the insurance provider waives off the remaining premium payments, depending on the terms of the policy.

Tax Benefits

Term plans are the most economical modes of tax savings. The premium payments are tax exempted in accordance with Sec 80C of the Income Tax Act, while providing the benefit of a high sum assured. Hence, this term insurance can save a lot of money that you pay as income tax. However, tax benefits are as per Income Tax Act of 1961, and subject to change from time to time.

Return of Premiums Option

A basic term insurance plan only provides life cover to the beneficiary in the event of the life insured’s untimely demise. It does not provide have any benefit on maturity, but as mentioned earlier, you can get a maturity benefit under insurance plans if you opt for the return of the premium plans. This option will require you to pay comparatively higher premiums but at the same time provide extra maturity returns. Another great feature of term plans is that the premium repayment amount is exempt from taxes as repayments have tax exemption.

Critical Illness Coverage

Sometimes people can suffer from a critical illness during unexpected times. Treatments expenses can drain all your life savings in an instant. If your term insurance plan has an additional Critical Illness Coverage, you will even get health insurance. It will financially help you in case of diagnosis of any critical illness during the plan term.

Simple Terms and Conditions

While buying a life cover, you may find it difficult to understand the insurance-specific terms of various life insurance policies. The government requires every major insurance provider to have basic life covers, usually known as Saral Jeevan Bima. These policies do not have an investment component in them. You just need to pay the premiums, and the insurer will provide pre-decided life cover for a fixed policy term.

Conclusion

Several people mix investment and insurance. You must treat insurance as a financial safety net for your family rather than a tax-saving investment tool. Tax saving is just an aspect of a term insurance investment, and the want of saving money can make you fall for inadequate coverage. And it can consequently lead to trouble for your family when the need arises. Buying term insurance plans are essential. They help your family in minimizing the financial stress they might have to face in your absence. So, considering all these benefits, term insurance plans are an investment rather than an expense.

Disclaimer:

*Tax benefits are as per the Income Tax Act, 1961, and are subject to any amendments made thereto from time to time
The article is meant to be general and informative in nature and should not be construed as solicitation material. Please read the related product brochures for exclusions, terms and conditions, warranties, etc. carefully before concluding a sale.
Make responsible financial decisions. Consult with your financial advisor before making any decisions on insurance purchase.

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