Think Before Buying Term Insurance

Best Term Insurance Plan

With more and more discussion of Term insurance on digital media. Everyone is searching for the best term insurance plan from various companies. But, when it comes to Term Insurance always remember, it an investment for the next generation or your loved one. Don't think it as an investment to enjoy your retirement. Also, it covers you for a very long term like 30 years or more based on your age, so your term insurance company should also last longer with you and later with your nominee too.

Term Insurance Meaning

In my previous post, Insurance: Your Perfect Partner for Life I have explained what is term life insurance and it's tax benefits. Today we are going to understand whether you should buy term insurance or not. We will be also analyzing whether pure investment through SIP is a more beneficial alternative over Term Insurance. 

Should you buy Term Insurance?

Do you have a family or your loved one who depends on you financially? If yes, Life insurance is meant to replace your income when you’re gone. Too often, people overlook this important financial safety net. Don’t be one of them. I know life is unpredictable and you only have this low-cost simple shield to protect your family from financial loss in your absence.

But, let assume you have a financially independent family and your death doesn't have a significant financial impact on their life. Do you still need a Term Insurance? 

 SIP Returns Over Term Insurance

I have taken a real-life example. Following details considered in below example:

• A term insurance premium of Rs. 32,400 annually (i.e. Rs. 2700 monthly). 
• Term insurance premium value is considered inclusive of taxes applicable (in this case, 18% GST)
• Term Insurance term or tenor - 35 years.
• Term Insurance cover - ~2Cr 
• Projected Market return considered at 15% CAGR. 

In the below calculation, we can clearly see that SIP return over 35 years tenure is double compared to the term insurance cover. As you are aware, there is no survival benefit for the term insurance, you are basically entering into an agreement with the insurance company to exchange funds based on your survival risk. So, either your nominee gets 2Cr or you pay 4Cr approximately. 

Pls note:

• A term insurance premium is a fluctuating component for each individual, based on multiple factors primarily age, lifestyle, weight, profession, etc. 
• Market returns are a fluctuating component and can affect actual returns in the future. 
• So, use this example and calculate for yourself based on your term insurance premium quote, tenure, and cover. 

Conclusion

Investment and insurance decisions should be well planned before investing, based on need and requirement. It should not be taken based on herd mentality. If you are investing in Term Insurance pure from the Tax Saving mindset, checkout ELSS or NPS option. I have already covered ELSS in my previous post: Top ELSS Mutual Funds for SIP.

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