Is Term Insurance An Investment or An Expense?

2024-08-02

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When it comes to giving money away, it is but natural to think of returns on investment. The same applies for insurance too. Many a times people put it in the same category as pure investment tools like say, mutual funds. However, you can’t exactly add term insurance to this list. Does that mean a term insurance policy is simply an expense? Not really. Let us see why.

What is term insurance?

As the name suggests, a term insurance policy offers life cover for a specific term which could be 5 years, 15 years, 20 years, etc. If the policyholder passes away within the policy term, their family will receive the sum assured, no matter at which point of the term death takes place.

For example, you take a policy of 15 years at the age of 25 years, with a sum assured of Rs.25 lakhs. You will have to keep paying regular premiums for the entire 15 years. If unfortunately, your death occurs at the age of 35, your family receives Rs.25 lakhs.

If you haven’t insured your family against such an untoward incident, you should definitely check out Canara HSBC iSelect Smart360 Term Plan. This online term plan offers a minimum sum assured of Rs.25,00,000, along with the option of getting a cover for your spouse as well. It also offers the option of whole or part of the death benefit in the form of regular monthly income to the family.

Also Read - Term Insurance Meaning

The catch

The catch is that if you live out the policy term, there is no maturity benefit on completion of the term. You do have the option of renewing the policy for another few years. If death occurs within this extended period, your family still receives the sum assured.

What people usually think

Paying thousands of rupees each year with the possibility of not getting any of it back is futile.
What if I outlive the policy term and the need to use the sum assured never arises? That puts me in a loss.
If I want to safeguard my future, I can always put my money in a fixed deposit or a recurring deposit instead of a term insurance policy, and also earn interest on it.
It is too pessimistic to invest so much in an insurance policy against premature death.

The reality

Investment in security : It is important to understand that returns on investment cannot just be calculated in terms of a monetary benefit or profit. When you take a term insurance, you are investing in the safety and security of your family, especially when they are dependent on you. It is an investment in the mental peace that you get out of the assurance that your family will be taken care of.

Cost vs potential returns: Firstly, term policies are low-cost. The premiums are minimal while the sum assured is very high. Hence, outliving the policy term is not going to put you in a huge loss. Besides, you can always renew your policy and continue experiencing the security of a life cover.

Fixed deposit vs term insurance policy: A fixed deposit might sound like a good plan at the moment. However, the maturity amount that seems high at the moment, is not going to have the same value in say, a decade from now. Fixed deposits do not factor in inflation. On the other hand, a term insurance promises a high sum assured with low investment.

The unpredictability of the future: It might sound a little pessimistic to assume that you are going to be no more in the next few years. However, it is not impractical. It is a real possibility and if it arises, your family will be saved from at least one reason to worry, which is finance. Ensuring that they have this sense of stability and peace is only reasonable.

Financial freedom for family: There is no restriction on how your family spends the sum assured. They could use it for your last rites, rituals, educational expenses, daily needs, or anything else that they wish to. With plans that also offer to pay out a part or all of the sum assured in regular monthly payments, they will be secured and peaceful for the long run.

iSelect Term Insurance: Now that you know exactly why term insurance is a necessary investment, do not wait. Get an online term plan immediately. Canara HSBC iSelect Term Plan is one plan that offers a plethora of benefits like the option to increase cover every 5 years; optional built-in accidental death and accidental disability riders; tax benefits; and multiple payout options.