Term Insurance: Investment or Expense?
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The importance of term insurance is touted by financial advisors as it secures an individual against uncertainties that might affect plans and commitments. Investors often weigh term plan benefits against a fixed or recurring deposit. As a term plan is a pure life cover that does not come with a maturity benefit, investors hesitate to buy term life insurance.
The general belief is that because there is no amount paid if a policyholder survives the term, term insurance is an imprudent investment. However, when scrutinised beneath the surface level, a fixed deposit does not consider inflation. Contrarily, a term plan incorporates inflation to secure the financial future of your loved ones in your absence.
Additionally, buying an online term plan allows you to select insurance based on customised financial requirements.
Defining Term Insurance
Term plan is created to protect your finances for a pre-decided term, hence the name. When you buy term life insurance, you are securing the financial standing of your family against unfortunate scenarios in the future. With increasing health concerns, the rising cost of medical treatments, and hospitalisation, term insurance has gained renewed importance. Although it might sound morbid, you cannot entirely discount the possibility of the impact of improbable events. To avail of this service, an individual pays the insurance company a term insurance premium. This premium amount is based on the age and the health of the policyholder and remains steady throughout the term. If you buy an online term plan, the term insurance premium is lower when compared to in-person insurance purchases.
Common Misconceptions Associated with Term Insurance
Despite the rising uncertainty, a recent survey suggests that only 3 in 10 urban Indians invest in a term insurance plan. Amongst other reasons, the hesitance to buy term life insurance can be attributed to inadequate knowledge and guidance for financial planning. Some common myths and misconceptions associated with term insurance include:
· It is expensive: Unfortunately, investments are often viewed in a restrictive manner. Our limited foresight only considers the maturity rewards. In the case of a term insurance plan, people often believe that no maturity amount equates to wasted money. However, term life insurance is amongst the cheapest investment that comes with a sizable cover for a low premium. Moreover, when you buy an online term plan, this cost can be lowered further.
· It is not a necessity: When it comes to safeguarding the financial future, people find it more rewarding to invest in a fixed deposit or a recurring deposit. This is because the interest amount appears enough to compensate for future expenses. However, while these are good investment choices, they cannot replace term life insurance. The term plan benefits are beyond just financial security.
· It is a pessimistic outlook on life: No one enjoys thinking about morbid things. A premature death seems unlikely when your health is steady. However, life is characterised by unpredictability, and it is important to secure your family against the unpleasant.
Traditionally, Indians rely on savings to support themselves in the second half of their life. However, savings alone cannot take care of every facet. It needs to be supplemented with term life insurance for a hassle-free financial future.
Why is Term Plan a Secure Investment?
A term insurance plan comes with unique benefits that categorise it under an investment instead of an expense. These include:
· Investment in mental peace: While monetary profit is an important consideration, it should not be the only criteria for an investment. Term insurance is an investment for the safety and security of your family. It is an especially important investment when you are the sole breadwinner of the family. It imparts you the mental peace that your loved ones will be taken care of even in your absence.
· Calculating returns: As a pure life cover, a term plan is one of the cheapest investments. The term insurance premium is minimal as compared to the death benefit provided against it. Therefore, if the policyholder survives the policy, there is no real loss of finances. Moreover, insurance companies enable renewing the policy so you can extend your cover for providing security in the later years of life.
· Comparative analysis: Fixed deposits are considered secure investments because, on the maturity of the policy, you are awarded an interest. However, fixed deposits come with a lock-in period which means that if you are in urgent need of money, you cannot withdraw the amount without harming your interests. Contrarily, term insurance comes with flexibility, and some plans even pay for hospital expenses. Additionally, a fixed deposit does not factor in the cost of inflation which a term plan does.
· Future security: Even if you are an optimistic individual, you cannot leave the financial future of your family and loved ones to chance. Having financial dependents requires a robust financial portfolio that will ensure that they continue to live comfortably even in your absence. When you buy term life insurance, there is one less worry on the part of your loved ones.
· Financial freedom: There is no spending condition associated with the death benefit that is paid to the survivors of the policyholder. The beneficiaries can choose to spend the money as they please. One of the primary term plan benefits is that the sum assured is completely exempted from taxes.
· Considers financial requirements: The financial requirements of an individual change depending on age and dependants. For example, a newlywed will need to think of the financial security of their spouse and aged parents. When an individual becomes a parent, they need to think of the expenses of education of their child. A term plan takes into account the current financial situation to provide an adequate financial cover.
The Edelweiss Life term insurance provides comprehensive financial protection to secure your loved ones against unpleasant scenarios. The innovative offerings are designed to address every financial need. Visit the Edelweiss Life website today to check out the term life insurance and other life insurance offerings.
Conclusion
Term life insurance is a good investment, especially in the long run. Although it is not traditional in its returns, it is still one of the safest investments to secure the financial future of your family in your absence. Aside from providing you life cover, it offers you peace of mind.
Chirag Iyer - BFSI Enthusiast
Chirag is a writer and an avid reader who loves to drink coffee! His other interests include boxing, karate, and singing.