Term Insurance Plan - Investment or Expense?

Term life insurance is probably the most sold insurance policy, but at the same time it is the most debated insurance policy too. The reason term plans see so many takers is because they come at a low premium. They are great way to claim tax deduction under the section 80 C of the Income Tax Act. But the reason they’re highly debated is that they don’t offer any maturity benefits. However, a term life insurance plan does provide a sizeable life cover. So if the policyholder does not survive the term of the insurance his or her nominee will get a good pay out, but if he or she survives, they are not entitled to receive anything.

It is the simplest form of life insurance that too adds to its allure. Investing in term plans is perfect plan for those who do not understand much about financial planning and tax saving. It’s the simplest tax saving tool for first time investors.

But, apart from the life cover, buying term life insurance has other benefits too, here are some of them.

1. Some term insurance plans do come with maturity benefits, unlike traditional term insurance that don’t have any maturity benefits. These are called TROP. A Term Return of Premium plan provides income replacement and refunds the premiums at maturity, apart from offering all benefits of a traditional term life insurance plan. A TROP plan is a variant of pure term insurance plan and ensures maturity benefits, if the policyholder survives till the end of policy tenure.

2. Many term life insurance policies are "renewable" and "convertible." Renewability ensures that you can go in for another term policy without a medical exam at the end of the first term policy. Convertibility allows you to convert your term life policy into an endowment policy for the same sum assured with associated increase in premium, should this make sense during the term of the policy.

3. Opting out of a term policy is much easier than getting out of permanent life insurance policies. In term policies if you stop paying the premium the risk cover ceases and the policy ends. Nothing is payable to you as there is no savings element in the policy. However, permanent life insurance policies only give the full promised survival benefit if they are held for the full tenure of the policy. If you stop paying premiums mid-term you face a financial loss.