Term Insurance: A Must-Have Investment
What We Are Going to Discuss :
The title in itself is questionable, but not in its true spirit in simple words it is quite obvious that “Investment” and “Insurance” are two different products the very first is pertaining to the amount that someone investing out of their savings whether in FD’s, Stocks, Mutual Funds, Gold, Crypto, Commodities, etc. and the second one is basically to cover or compensate or cover the uncertainties while creating these investments.
What is Term Insurance?
The meaning of “Term” is as simple as a specific period for any specific event.
Meaning of “Insurance” It is something like an order that insured or the person who undertakes an insurance policy, gives to insurance company that if ____________ happens gives financial protection to ____________, in case of Vehicle Insurance If my car gets damaged (happens) gives to financial protection me, in case of Health Insurance any disease diagnosed (happens) then gives financial protection to me or family member, similarly, Term Insurance in case of death or any critical illness, etc. gives financial protection to my family or loved ones.
It is also well explained in itself as it is the insurance that someone takes by way of paying a regular premium to the insurance company for a specific term or period that is why it is called term insurance.
Also Read-How to Open PPF Account in SBI Online and Offline?
Why Term Insurance?
As we discuss in Point No.1, Term Insurance is not in itself an investment but it is the very first step one should take before making any investment, let us consider both positives and negatives:
Positives of Term Insurance:
- Maximum at Minimum: It is the only life insurance product that gives you maximum coverage at the lowest possible premium if you will compare it with other plans (ULIP, Return of premium, Money back guarantee, etc.) you can see the difference you end up with to pay high premiums as compared to a term plan.
- Easy to digest: It is pure vanilla insurance that is quite easy to understand you just have to pay regular premiums and you can be under the umbrella of insurance and can protect your family with uncertainties of rain and bad weather as it is meant for protection purposes only it has no complexities of how much you are paying towards insurance sum assured how much towards investment and how much you will get in terms of annual return.
- Direct benefits under Income Tax: Premiums that you have to pay for a term plan is tax-deductible under section 80C up to 1,50,000/- in a particular year it can serve double benefits as it will make premiums cheaper by the applicable tax rate you are fall in and reduces your efforts to reduce overall tax liabilities. (For Example: If your annual premium is 10,000 and you are falling under 20% tax slab then the effective cost of premium would be 8,000 (10,000-20%))
- Exempted Income for Nominee: for Policy amount in case of maturity paid to the nominee will be fully exempt as per the provisions of Section 10(10D) of Income Tax Act, 1961, Intention of government is quite clear that every person should have these kinds of policies because governments cannot afford the burden of social schemes.
Negatives of Term Insurance
I don’t think there are negatives of term insurance but if I didn’t mention any points then it may portray biased opinion, the only point which wanted to mention here is that if at the end of the policy term, you are alive which is very good undoubtedly, then you will not get a single penny of premiums that you have already paid to the insurance company and it is quite justifiable say you paid motor vehicle insurance premium if no accident/causality reported then you urge to the insurance company to return the premium, obviously no it is pointless.
In an upcoming article we will discuss how to choose a term plan and how to apply for term insurance (Whether Online or Offline) + Some Pro tips
Please comment below for any questions or concerns, I am happy to answer any questions.
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CA Final Student, B.Com (Delhi University)
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