Term Insurance - Investment or Expense?
Published On Jul 26, 2021
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An expense is often an essential spend that does not necessarily provide any future benefit, but the investment is an expenditure that helps provide for our future. It's worth noting that investment returns aren't always expressed in monetary terms but may also be viewed as an investment in one's future financial security. The following article aims to explain whether a term insurance policy is an investment or an expense. So, if you are confused about purchasing a term insurance policy for yourself, you have clicked on the right article.
What is a Term Insurance Policy?
A term insurance policy is a kind of life insurance in which the nominees, typically a person's spouse, children or parents, are covered for a set number of years. Here, a death benefit is paid out in the form of a lump sum amount if the life assured dies while the policy is active. Although the primary goal of a term insurance policy is to provide complete financial stability to a person's family in death, it also offers certain benefits.
Benefits of a Term Insurance Policy
Here are certain benefits of a term insurance policy.
1. Income Replacement
The loss of the family's breadwinner might leave the family in a financial bind with no income. Thus, if the life assured dies within the policy's term, death payments paid in regular monthly instalments can be used to replace income. This will ensure that the family's current lifestyle is maintained and that their day-to-day expenses are met after the death of the life assured.
2. Loan Repayment
If the life assured passes away before repaying all of the loans, the entire weight of the loan or debt repayment falls on the shoulders of his/her loved ones and dependents. Moreover, when the life assured is the family's sole breadwinner, the situation becomes even worse. In this case, the right term insurance policy can give death benefits that can be utilised to pay off the loan or debt and keep your family from being in debt.
The rider benefit provision of the term insurance policy also gives financial comfort under challenging circumstances. So, if you have a family history of illnesses such as heart attacks, cancer, or renal problems, you can purchase critical illness coverage. Furthermore, if the life assured dies in an accident, a death cover rider with additional accident coverage helps cover the accidental costs.
3. Tax Benefits
Under Section 80C of the Income Tax Act, some tax deductions are offered on the term insurance policy premium of the policyholder. You can save up to Rs. 1.5 Lakh under this feature. Moreover, under Section 10(10D), the death benefits provided to the nominee if the life assured dies within the policy duration are tax-free.
Is Term Insurance an Investment Or an Expense?
The benefits mentioned above hints that term insurance policies are great investment instruments. Although term insurance may not include the savings component of a traditional cash value policy, it can act as a form of investment in another sense, depending on how you want to organise the future and finances. Considering how inexpensive, straightforward, and beneficial term insurance may be, it can be a blessing for your family.
It must be remembered that you should not mix investment and insurance. It is advisable to treat insurance as a financial safety net for your family rather than a tax saving investment tool. Tax saving is just an aspect of a term insurance policy, and the greed of saving money can make you fall for inadequate coverage, which can consequently lead to trouble for your family when the time comes.
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.