How Term Insurance Is Right Investment Choice?

Term Insurance Plans are the simplest and most affordable form of Life Insurance. Term insurance plans are life insurance plans which promise to pay a benefit only if the insured dies during the term of the policy. There is, usually, no maturity benefit payable under the plan. Term plans are, therefore, called pure protection plans. Term plans versus other life insurance plans. Term plans are, in effect, a subset of life insurance plans. 

Major Differences Between Term Insurance And Other Life Insurance Plans

• Term Plans Have More Affordable Premiums

Given the nature of term plans, their premiums are much lower than other traditional insurance plans. In fact, among all life insurance plans, term plans have the lowest premium. This low premium allows you to afford an optimal sum assured so that you can ensure sufficient financial security for your family in your absence. Other life insurance plans, i.e., traditional plans such as endowment policies, on the contrary, have higher premiums. If you choose a high sum assured in a traditional insurance policy, the premiums become unaffordable. 

• Term Plans Allow Affordable Coverage

Given the huge difference in the premium rates, affording a high coverage under any life insurance plan, except term insurance, is difficult. The thumb rule states that you should have a minimum life insurance cover of 10 times your annual income or sufficient to meet future living expenses and value of financial goals after accounting for inflation. Only term plans can give you sufficient coverage without burning a hole in your pocket.

• Term Plans Can Be Used To Get Complete Future Financial Security

High coverage at affordable premiums is the only important factor which differentiates a term insurance plan from other plans of life insurance. While other plans might give you guaranteed returns, periodic money backs or lifelong annuities, term plans offer you the option of getting a sufficiently large sum assured at a low cost. This would allow you to give your family a complete sense of financial security at an affordable price.

• Term Plans Have No Saving Component

Other life insurance plans, like endowment or money back plans, have a saving element in them. They promise to pay either a death benefit in case of death during the term or a maturity benefit if you survive the term of the policy. Term plans, on the other hand, have no saving element (except for return of premium term plans). They pay a benefit only in case of death and the maturity value is, usually, nil.

Conclusion

Most of us buy insurance plans offering guaranteed benefits and overlook term insurance plans. When buying life insurance, term plans should be given priority. If you need life insurance, you should look at buying other plans only after you have taken a term insurance plan with a sufficient sum assured.

You may also like to read - Why Should You Choose Term Insurance Over ULIPs?

Disclaimer: This article is issued in the general public interest and meant for general information purposes only. Readers are advised not to rely on the contents of the article as conclusive in nature and should research further or consult an expert in this regard.