A term plan is a good safety plan, but its investment potential is debatable, mainly because it doesn’t have a return of the premium policy. Interest makes an investment popular, but regular term insurances don’t have the maturity benefits or interest rates of a return of premium term plan. So, there is no question of interest or investment potential.
But would you believe that more arguments support the claim that a term plan is an investment rather than an unrewarding expense? Below are some such arguments that will clear your mind and help you realize how a term plan is an investment.
Argument 1: The Premium Amount Is Economical
Most people think that the premium amount will also be high because the life cover is high. But this is only true for a return of premium term plan, not for a regular term plan. As a term plan doesn’t provide maturity benefits at term-end, the insurer sets the premium excessively economical. You can find several term plans with 1 crore life cover with premiums as low as INR 15,000.
So, if you have a steady flow of income, the premium amount can be negligible. And at the same time, it can provide great returns in case of a claim.
Argument 2: The Returns to Investment Ratio is Very High
The return to investment ratio is a significant factor in choosing any investment plan, including term insurance. Considering how much less you pay towards the term plan and how high the mortality returns can be, its returns to investment ratio is very high. However, a return of premium term plan only has a premium repayment or sometimes interest rates in the range of 5 to 12%. So, their returns to investment ratio lie within the range of 1 to 1.12. The same for the regular term plan can be as high as 2 to 5.
So, with a limited investment amount, you get high returns in case of a claim. The high returns to investment ratio distinguish regular term plans from the return of premium term plans.
Argument 3: Term Plan Provides Assured Returns
Like any other life insurance, a term plan provides assured returns in case of demise during the policy term. It means there is a fifty-fifty chance that the plan will be helpful to the nominee in case of a sad demise.
So, the assured returns help mitigate financial risks for the nominee within the policy term.
Argument 4: Whole Life Term Plans Provide a Wide Coverage
Most term plans also provide whole life coverage. It means you only pay premiums for 10 or 20 years, but the policy term will be for the lifetime. So, you don’t need to renew the policy or start a new one every time the existing one ends. It also increases the coverage validity, thus always benefiting the nominee.
So, a whole life term plan increases the duration of the policy term and helps provide the nominee the mortality returns even after the end of the policy payment term.
Argument 5: The Extra Riders Increase the Scope of Claim
Term plans also allow adding riders such as accident cover, permanent disability cover, health cover, and critical illness cover. Adding these covers won’t cost much but will substantially increase the scope of the term plan.
So, you can increase the chances of getting the assured amount through the extra covers in the term plan.
Argument 6: The Tax Savings Help Indirectly Earn Money
Term plans also provide tax savings against the premium payments. So, you can claim relaxations on these payments and increase your savings.
So, you can save money and reduce the premium burden through tax savings in a term plan.
Reading these arguments will help you understand how even a regular term plan is an investment similar to the return of premium term plan. After realizing that both types of term plans have their own benefits, why don’t you invest in one right away? Today, you can find several good term plans from the various insurers in the country.
But a sure shot method to ensure the returns of the term plan, you must select an insurer with the highest claim settlement ratio.