SIP VS Term Insurance Plans: Understand the Difference?
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Systematic Investment Plan, commonly referred to as SIP is a plan in which you can invest small amounts of money consistently in a mutual fund/scheme of your choice instead of lump sums. It helps you build a large corpus over a period of time in the most convenient and flexible manner. SIP allows you to purchase additional units of a scheme at NAV based prices by investing a fixed amount every month. It inculcates the habit of disciplined investing for long-term wealth creation.
Term insurance is a type of life insurance that provides coverage for a specific period of time or years, i.e., a term. This type of life insurance provides a financial benefit to the nominee in case of the unfortunate demise of the insured during the policy term. Term Insurance policies provide high life cover at lower premiums.
Features Of SIP
The following features of SIP make it the perfect tool for the equity market:
- Convenient and disciplined approach towards investment
- Allows you to invest small amounts regularly to build large corpus
- Based on the concept of Rupee Cost Averaging
- Gives you the flexibility to choose between Amount and Quantity based SIP
- You have the freedom to choose your investment intervals
Benefits of SIP
As one cannot predict the highs and lows of the market, Systematic Investment Plan ensures that you make the best out of the market along with the following benefits:
- Reduces risk because of Rupee Cost Averaging
- Allows you to invest small amounts of money in the initial stages
- Keeping up with the market trends isn't necessary
- Helps you achieve long-term financial goals
- Creates a disciplined approach towards investment, thereby, helps in controlling spends
Features Of Term Insurance
Here are some features of term insurance plans:
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Low entry age
Term insurance plans have a minimum entry age of 18 years only. You can buy a term plan and secure your loved ones as soon as you reach adulthood
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Long term protection
The term plan offers long policy tenures of up to 40 years that allow you to protect your family members for a long time.
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Easy to buy
Term insurance can be purchased online in minimal steps. You can compare different plans and features with a few clicks and pick a plan that suits your needs the best. The submission of documents, premium payment, and all other customer queries can be submitted online from the comfort of your home or office
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Easy premium payment options
Term insurance plans offer flexible premium payment options like monthly, quarterly or yearly payment
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Adjustable cover
The term plan is flexible and allows you to increase or decrease the sum assured basis your financial condition
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Liability protection
The sum assured of a term insurance plan can be used to ensure your family’s financial security and protect them from debt liabilities like a loan repayment
Benefits Of Term Insurance Policy
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High Life Insurance Amount at affordable premiums
Term Insurance plans provide a large amount of life insurance cover at an affordable premium. This cover can compensate for several years of lost earnings.
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Cover Against Critical Illnesses
Along with providing life cover, a new-age term plan like ICICI Pru iProtect Smart also provides protection against critical illnesses. For a small additional premium, Critical Illness Cover provides lump sum payments when a critical illness like a heart attack, cancer, kidney failure, or any other critical illness is first diagnosed.
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Support In Case Of Disability
In new-age Term Plans such as ICICI Pru iProtect Smart, the insurance company pays your future premiums in case of total and permanent disability. As a result, your life insurance cover continues even if you are unable to pay premiums.
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Additional Security
To increase the security of your family, a Term Policy provides additional payout (up to `2 crore) in case of an accidental death. For example, if your life cover is `1 crore, a Term Insurance Plan with Accident Death Cover pays `2 crore to your family in case of an accidental death.
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Tax Benefits
Term Insurance plans offer tax benefits on premiums paid up to 46,800 under Section 80C. New-age Term Plans with critical illness cover also offer additional tax benefits on premiums paid up to 7,800 under Section 80D. You also get tax benefits subject to conditions under Section 10(10D) on the money that your family receives in case of an unfortunate event.
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Death benefits
In the unfortunate event of death during the policy term, your family receives the death benefit from term insurance. Your nominee can choose to receive a regular income along with a lump sum benefit in your absence
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Survival benefits
Standard term insurance does not offer any benefits if you survive the term. However, a return of premium term plan also provides you with a lump sum or regular income as guaranteed benefits to help you fulfil varied financial goals. The term plan pays back an amount that is at least equal to the total premium paid. You receive these guaranteed benefits at the end of the tenure
Conclusion
Choosing between SIP or term insurance can be difficult. Hence, we bring to you a comparative study between the two. This will help you to choose one between the two and make an informed decision.
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