Term Insurance Vs. Investment Plan - Which Is Better?
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At various life stages, one needs funds. An individual needs to build the corpus. Whether the need is for child's education, marriage or retirement savings. When one starts looking up for various ways to build funds, one tends to look at investment plans where your money grows while you sit back. Because of the number of investment avenues, there is no simple solution to it. However, the simplicity of investment plans and term insurance offered by most life insurance companies is one of the finest options available.
Investment plan is the simplest way to build wealth over time. Life insurance companies offer various investment plan options. These are the wealth creation products for the future when you will require it. It requires planning and understanding of different options available.
Term insurance plans secure your family’s financial future even when you are not around. These plans are considered by many as one of the basic financial necessities of life, especially in today’s times. Term insurance plans also have multiple features and benefits, right from affordable premiums to riders for additional covers.
What Are The Benefits Of Term Insurance?
Term insurance offers multiple benefits to customers. Here are a few you should be aware of:
- Affordable Premiums - You can get a high-value life cover from a term insurance plan by paying an affordable premium amount of ₹ 540/- p.m. Premium payments can be made either monthly/half-yearly/yearly. The earlier you buy a term insurance plan, the lower the premium amount you have to pay.
- Whole Life Cover - Term insurance plans offer substantially longer coverage. Whole life insurance plans offer coverage till the age of 99 years
- Payout of Sum Insured - In case of the unfortunate demise of the person insured, the family members will receive the sum assured as a payout. The policyholder can choose for this payout to be in the form of a lump sum, an income that is either monthly or annual, a combination of lump sum and income or an increasing income at the inception. This will help take care of financial needs and household expenses among other costs
- Critical Illness Coverage - In case optional Critical Illness Coverage is included in your term insurance plan, you will get a lump sum payout upon diagnosis of any critical illness1 that is covered in the plan
- Accidental Death Benefit - You can add the Accidental Death Benefit benefit3 to your term insurance plan. This will offer protection against any mishaps in the future
- Coverage for Terminal Illnesses - Term insurance plans can give you lump sum payouts in case of diagnosis of terminal illnesses such as AIDS.
- Tax Benefits - You can get tax benefits on premiums paid under Section 80C along with premiums paid towards critical illness benefits under Section 80D. The lump sum amount received by nominees as the sum assured/death benefit is also exempted from taxes subject to Section 10 (10D) of the Income Tax Act, 1961.
Benefits of Investment Plans
Following are the benefits of investment plans:
- Wealth Creation - Investment plans with life insurance are sure shot ways to accumulate wealth over a period. As an investor one can choose suits the best depending on the risk, returns and disposal amount to buy a plan. In the future, when you would require funds for a child's education, child’s marriage, retirement, pension, etc. life insurance investment plans will financially aid you.
- Financial Protection - Life insurance policy provides life coverage with investment options, which takes care of the family financially as both Survival and Death Benefits are provided. At maturity, the policyholder receives the returns with profit in the pocket. This way one can provide long-term financial security to the family. In case of an unfortunate eventuality, the policyholder dies before maturity period, the insurance company will pay the nominee the sum assured. In this way, it provides financial protection to the family of the policyholder.
- Death Risk Coverage - Not all investment avenues offer death risk coverage options. However, investment plans by life insurance do. These plans include death risk coverage. This way, your family’s financial needs are taken care of even in your absence. The sum assured is paid to the nominee in the event of the death of the policyholder.
- Retirement Savings - One can buy these investment plans at any given time of life stage. That said, this allows you to create the corpus for retirement. One can buy and build funds that can be used at the later stage of life. In this way, even after retirement the investor will be financially independent.
- Flexibility - Flexibility of money to be invested and the duration. One can opt as feasible, depending on the needs and planning.
- Save Taxes - Investment plans are not only risk cover or wealth accumulation plans, but these plans also help in tax savings. As per section 80C and 10(10D) of Indian Tax Act, premiums and payout are exempted from tax. A perfect combination of savings, wealth creation, financial protection with tax benefits.
- Loan Facilitator - Life insurance investment plans also act as a loan facilitator. But, it depends on the coverage one has taken, premiums paid, eligibility for the loan amount, etc.
Conclusion
Now the question is the term Insurance or Investment plans? The answer is simple and boils down to what you need now and what you need in the future. While Investments will take care of your now and immediate future, Insurance will take care of you and your loved ones in the long run.
Also read- What Is Investing And What Does It Mean? Learn About Several Investment Options.
