Every individual has a different perspective on investments. An investment strategy is different for people and is based on their financial objectives. However, it is essential to know the difference between investments and expenses.
Investments are nothing but an additional expenditure that allows you to secure your financial future; whereas, expenses do not provide any future gains. Understanding this difference will help you buy the correct term insurance plan.
What Is Term Insurance?
The term insurance plan is nothing but an insurance plan that provides coverage to the beneficiaries of the policy for a specific term. In case your (the policyholder’s) sudden dismissal during the policy term, a death benefit is paid to the beneficiaries of the policy.
Term insurance plans are one of the most basic and affordable insurance options available in the market. They tend to be more flexible in nature and are cost-effective. You can also claim income tax deductions for the premiums paid under a term plan.
The aim of term plans is to provide financial security to your loved ones in your absence. However, note that term insurance plans are not for creating wealth over time and certainly do not provide income to the family while you (the policyholder) are still alive.
So, how do I know if the term insurance plan is right for me?
As explained earlier, basic term insurance plans do not provide any benefits if you survive the policy term. However, there are certain types of term plans that do provide maturity benefits. Even though term plans may not appear to be an investment option in terms of wealth creation, it still may be the right kind of investment in the long run.
Following are a few situations wherein a term insurance plan could be a perfect choice –
- If you earn a moderate regular income and wish to financially protect your loved ones. Term insurance is quite an economical plan that fits well within a budget.
- Certain types of term insurance plans are ideal for people who have loans such as a home loan or personal loan to pay off. With the right term plan, during your sudden unfortunate dismissal, your loved ones will be able to pay off the financial liabilities easily.
- In case you are starting a new venture then term insurance plans are quite affordable compared to cash value policies.
Depending on how you plan to manage your financial future, a term insurance plan can come in handy. The term plans available in the market are affordable, simple to understand, and quite effective.
Not many people opt for term insurance as they lack knowledge regarding the policy and the various benefits it offers. However, whether a term plan is an investment or expenses is completely dependent on your current lifestyle, financial situation at the given time, and what your financial objectives are.