Is Term Insurance a Good Investment?

by SMCIB on Tuesday, 09 January 2024

Is Term Insurance a Good Investment?

Life is like a game of poker. You never know what cards you will get, and what challenges you will face. But a smart poker player always has a few aces up their sleeve. Similarly, you should be prepared for the unexpected twists and turns that life may throw your way.

A term insurance policy is that preparation.

Just like the aces in your poker game, term insurance is a powerful tool that can help you ensure that your loved ones are financially secure no matter what happens. It is a smart financial avenue that lets you be worry-free knowing that your family will be taken care of in your absence.

To understand whether term insurance is a good investment or not, it is crucial to know the difference between insurance and investment. Insurance serves as a safety net that shields you and your loved ones from financial distress in the event of unforeseen circumstances. On the other hand, investment is a way to accumulate wealth gradually.

Although some insurance products, such as ULIPs, whole life insurance, etc. include an investment aspect, term insurance’s sole purpose is to provide financial protection. As a result, if your objective is to invest and develop your financial portfolio, term insurance may not be the best option.

Although term insurance may not offer an investment component, it continues to be a wise financial decision. It guarantees your loved ones financial protection and peace of mind. The death benefit that they will receive if you pass away during the policy term will reduce their financial burdens by covering expenses such as children’s education, living expenses, loans, etc.

To sum up, term insurance may not be appropriate for someone who is seeking an investment product that generates a cash value over time since term insurance policies do not typically offer any benefits if you survive the policy term.

How Does Term Insurance Work?
Term insurance is one of the simplest ways to safeguard your family's financial future. It is a straightforward product that paves the way to securing your family's financial future.

If you pass away during the policy duration, the insurance company will pay a sum of money to your family, known as the ‘sum assured’. This payout acts as a replacement for your income, ensuring that your family's financial needs are met without compromising on their lifestyle. Your family will receive this cover amount depending on the payout option you selected when purchasing the policy.

Term insurance is a pure risk insurance cover, meaning that if you survive until the policy duration, it will not pay any benefits to you.

Benefits of Term Insurance
Term insurance policy comes with an array of benefits. Some of them are listed below -

1️⃣ Simplest Form of Life Insurance
Term insurance is the most straightforward form of life insurance. It pays a fixed amount of money to your family if you pass away during the policy duration. The only thing that you have to ensure is that you pay all the premiums on time.

2️⃣ Affordable Premiums
Term insurance policies guarantee financial protection at an affordable cost. For instance, a term insurance cover of Rs 1 crore can cost as low as Rs 900 per month. This means that your family will get a remarkable return, i.e., for every rupee invested, your family will potentially yield Rs 1000 if you pass away during the policy duration.

3️⃣ Provides Financial Protection to Your Family
A term insurance policy stands as one of the best ways to ensure your family’s financial security when you are no longer around to provide for them. It serves as a means of income replacement, assuring you that your family's financial future will be secure and their needs will be met without pushing them to sacrifice their dreams and lifestyle.

For example, Rithika is a software engineer living with her spouse and two children. She is the only breadwinner of her family. One day at work, Rithika contracts a heart attack and passes away. Rithika had invested in a term insurance policy with a sum assured of Rs. 30 lakhs. So, the insurer will provide her family with a death benefit of Rs 30 lakhs. With this amount, they can maintain their standard of living and take care of all their financial needs.

4️⃣ Highly Customisable
Term insurance provides you with a wide range of customisation options. It allows you to tailor the policy to meet your and your family’s unique needs. For instance, you can choose the limited pay option to finish paying off your premiums faster and in larger instalments in say 10-15 years. Then, you can choose the increasing cover option to enhance your term insurance coverage. Under this option, your cover amount automatically increases over time until a maximum limit is reached. And so on.

 5️⃣ Covers Death Globally
Another significant advantage of a term insurance plan is that it provides global coverage for all kinds of deaths. This comes with one notable exception, suicidal deaths happening within the first year of policy purchase are not covered. In this case, the nominee will receive the total premiums paid until the day of death and not the cover amount.

6️⃣ 3-Year Claim Payout Guarantee
Section 45 of the Indian Insurance Act of 1938 mentions that, any life insurance plan that has been continuously in force for 3 years cannot be investigated or rejected by the insurer on the grounds of fraud, misstatement, or suppression of facts.

Your family is guaranteed to receive the claim amount if your policy has been active for a minimum of 3 consecutive years, provided the premiums are paid on time. The insurer cannot dispute or question the claim on grounds of fraud, misstatement, or suppression of facts.

7️⃣ Dual Tax Advantages
Term insurance offers tax benefits for both the premiums paid and the claim received, under different sections of the Indian Income Tax Act of 1961.

  • Section 80C allows you to claim tax deductions up to Rs 1,50,000 for the term insurance premiums paid every year.
  • In the unfortunate event of your passing away during the policy duration, the claim payout received by your family will also be exempted from taxation under Section 10(10D) of the Income Tax Act of 1961.

You should understand that term insurance is not an investment option but a pure risk protection plan that assures financial stability to your loved ones in case of your untimely demise. Its main purpose is to build a nice financial cushion for them. Unlike investment options, it does not generate any returns on investment or accumulate cash value. It is purely designed to mitigate the risk of your passing away and provide financial security to your loved ones.


To Conclude,
Term insurance is a financial tool that promises protection to your family at a considerably affordable cost. While it may not provide any returns or accrue wealth, it offers financial security to your loved ones in case of an unexpected event. Hence, if your primary objective is to secure your family's financial future, term insurance can be a suitable option for you.


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