When it comes to personal finance, there’s a lot more to explore than just investments. There are various aspects of money management, from budgeting, income, and expenses, to credit management, loans, and liabilities.
Moreover, while insurance and investments are significant parts of financial management, they tend to serve completely different purposes and should not be interchanged in any way. With that said, if you already have an investment in place, you should still consider getting a term insurance policy.
Unlike conventional investment plans, term insurance doesn’t offer any monetary returns. However, in the wake of uncertainties in life, it acts as a great tool to safeguard your family’s future in your absence and help them manage their daily expenses in the event of your death.
This article emphasizes the importance of term insurance policies in the presence of other investment avenues that you own. Therefore, if you’re confused about whether you need a term plan or not, keep reading to find out.
What is A Term Insurance Policy?
Popularly known as pure life insurance, a term plan is a type of life insurance product that provides an assured sum of money to your nominee in the event of your unfortunate demise. These policies carry no other value than the guaranteed death benefit and offer no saving component.
Once your term expires, you can either choose to convert the policy into permanent coverage, renew it for an additional term, or allow the policy to terminate. The premiums you pay for a term insurance policy depend on your age, life expectancy, and health.
Depending on individual circumstances, you can choose from several different types of term plans such as level terms, yearly renewable term, and decreasing term policies. If you’re invested in other policies, these variants might sound self-explanatory to you.
Term Insurance Is Not an Investment Avenue
Before we get any further, we want you to repeat this after us – insurance is not an investment. When you are investing your money in a policy or security, you expect to get something in return. However, that’s not the case for term insurance policies.
If you die during the policy tenure, your nominee enjoys the monetary death benefit. In case you survive throughout the tenure, nobody gets anything out of it. While it may sound a bit bland, if you look closely, that’s what life insurance is all about.
Despite the name, life insurance is about death, not life. In the advent of getting something in return for your investment, you might opt-in for policies that offer something in return even if you survive throughout the quoted tenure.
Once you do this, you’re giving up on a chance to safeguard the future of your loved ones. While different people have conflicting views, we stand by the fact that term insurance is the cheapest, purest, and one of the most intelligent choices of life insurance.
The reason why most people never invest in a term plan when they have other financial investments is the lack of adequate financial knowledge. Not to mention, the constant misguidance by insurance agents on insurance products with higher commissions makes it even worse.
Moreover, as hybrid insurance-cum-investment products like ULIPs and endowment plans emerge in the Indian market, people begin investing in these avenues in a bid to receive multiple benefits. However, many of these options failed in both terms.
Neither do they deliver substantial returns, nor do they provide adequate coverage. For instance, the maximum coverage a ULIP can provide is 10x the premiums paid, which means if you pay an annual premium of Rs. 30,000, the maximum coverage you can receive is Rs. 3 Lakhs.
This amount is not even sufficient to purchase a standard sedan so just forget about dreaming of taking care of your family’s future needs with it. On the other hand, a typical term insurance policy offers you coverage of up to Rs. 50 Lakh for a mere annual premium of Rs. 7000 – 10,000.
Why Must You Have Term Insurance?
If you’re looking for financial security for your loved ones then term insurance is a good choice. Several term insurance benefits make it a must-have in your financial planning portfolio, even if you’re already invested in other instruments:
Easier to Understand
Unlike ULIPs or endowment plans, term insurance policies are easy to comprehend. There’s no ambiguity involved in these plans as you just have to pay the premiums and enjoy the coverage against death for a certain time.
Cheapest of All
One of the most desirable term insurance benefits is that they’re the cheapest forms of life insurance products available on the market. As it doesn’t mix the investment aspect with insurance, you end up saving money on charges like fund management charges, portfolio allocation charges, and many more.
Offers Larger Cover
As compared to other life insurance products, term plans provide a larger life cover for the same or even lower premiums. With such affordability, term insurance makes it convenient for everyone to cover their life risks against uncertainties.
Early Bird Advantage
With a term plan, the earlier you take action, the more benefits you can yield from the policy. As you advance with age, the premiums required to gain term insurance coverage increase. However, if you zero in on the policy at a young age, the premium is low and remains steady throughout the tenure.
Bottom Line
We know that planning for the future is hard because it can be difficult to think about your financial future, especially when you are dealing with the present-day stresses of life. When it comes to creating a comprehensive financial plan, you want to make sure that all aspects of your finances are taken into consideration.
Term insurance should be looked at as part of this plan, but it should not be looked at in isolation. It is always better to have a term plan along with your other financial investments. The reason for this is because this type of insurance can give you peace of mind, knowing that if an emergency happens or you are diagnosed with a terminal illness. Also read about What are Forex Signals? and many more on Technos Daily.
