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Is term insurance an investment or an expense

By purchasing a term insurance policy, you are, in a way, investing to secure the financial future of your family, in case you are no longer around. A term plan acts as a safety net, providing your family with the much-needed financial help and giving you peace of mind.

It is said that Lord Krishna, Lord Rama, and Bhishma knew the time when they would leave this world. Each of them came with a mission or set of responsibilities to fulfil. But, does any of us know when something will go wrong? We all know that in human life, unexpected is to be always expected. Our life is full of uncertainties with a lot of responsibilities, short term as well as long term. We are all born with some duties to fulfil, but we don't know how much time we will get to fulfil these responsibilities.

Term insurance is a form of life insurance product offered by insurance companies, which provides financial protection to a policyholder for a specific period of time. This can be 5 years, 10 years, 15 years, 20 years, and so on. In the event of the death of the insured person, the death benefit is paid by the insurance company to the nominee. Though term insurance does not offer any returns in the form of maturity benefits, they offer the most crucial thing, a cover for your life. If an unfortunate incident takes place resulting in death, it offers a lump sum amount to your family. In a way by availing a term insurance policy, you are investing in securing your family’s future, so that they can meet all their financial needs in your absence.

How does term insurance work?

A 30-year old Ajay purchased a term insurance policy for 40 years, which meant that he would be covered till the age of 70. The sum assured for the policy is amounted to Rs. 50 lakhs. Now, Ajay met with an accident and passed away at the age of 38 years. Since his demise took place during the policy term, the insurance company will pay his nominee the promised sum assured of Rs. 50 lakhs.

How is term insurance a worthwhile investment?

The intention behind getting a term insurance policy is that you are financially securing your family even after your demise. Life is unpredictable, and you cannot say what is going to happen next. With a term insurance policy, you can make sure that your family does not face any financial stress since the proceeds from the policy would take care of everything. The insurance company does not interfere with how your nominees choose to use the policy proceeds – it is entirely up to your family. They can use it to cover household expenses, school or college fees for children, loan repayment, etc.

Term Life Insurance is the most pocket friendly type of life insurance available in the market today. Considering that the policy is easy on the pocket, you can include this in your financial portfolio along with other investment options. If the 'Return' component is your concern, you can avail of term insurance policy with return of premium. This type of term insurance policy functions quite similarly to a regular term policy. It also pays death benefits if the life insured dies during the policy term. But the difference is that all the premiums paid during the policy term will be returned to the policyholder if he/she outlives the policy duration.

Why you must invest in term life insurance

  • Financial stability: Financial security is the basic reason why people opt for a term life insurance policy. The death of the breadwinner of the family can turn the life of the dependent members upside down. During such circumstances, managing household expenses and taking care of the financial needs becomes a challenging job for surviving family members. A term insurance plan provides the sum assured at the time of death of the policyholder and can make the life of the dependent members financially easier.
  • Securing the future: Major earning member of the family has a set of obligations and responsibilities towards family. Death can forcefully stop you from meeting those financial obligations. With term insurance, you can effectively plan for your future. In the event of your sudden death, the payment received from the insurance company will ensure your family will not be forced to discontinue living their current lifestyle. Your children will continue to get a good education and have funds available for their wedding. Similarly, with the right amount of term insurance policy, your spouse and parents can lead a comfortable life without facing financial hardships.
  • Debts: Almost everyone has some or the other type of loan. It can be a home loan, education loan, or personal loan. The proceeds from your insurance policy help pay off your loans and ensure that the burden of these loans does not fall upon your family.
  • Comprehensive coverage at a low premium: Due to the absence of maturity benefit and an investment element, a term insurance plan offers high coverage at a relatively lower premium, which is affordable for most people. Moreover, if you buy life insurance online, the premiums are even more economical as there is the absence of associated marketing and administration costs.
  • Riders: Most term insurance plans offer optional add-on covers, generally known as riders. Accidental death benefit rider, critical illness rider, waiver of premium, total and permanent disability rider are some of the popular add-ons opted by policyholders. These riders aim to meet individual requirements and ensure that you get the utmost benefit of life insurance without burning a hole in your pocket.

Term insurance is affordable, provides financial safety, and, most importantly, gives peace of mind. Moreover, it also entitles you to claim tax benefits under Section 80C and 10(10D) of the Income Tax Act, 1961 for premiums paid towards the policy and proceeds received from it, respectively. There is nothing you can lose by availing a term insurance policy; you only win. When all these points are taken into account, it can be easily concluded that term life insurance is undoubtedly an investment than an expense.

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