People often confuse insurance as an investment, and an increasing number of people are “investing” in insurance. Of course, they are undeniably being driven by the ambush marketing of insurance companies that spends huge money on branding. These companies prefer to label their products as investments.
The aim of insurance
Let’s first check out the purpose of insurance and what it serves. All insurance plans aim to protect you from financial risks.
“While life insurance helps you to secure the future of your loved ones financially after your death, car insurance ensures that accidents don’t leave you bankrupt, health insurance on its part, ensures that medical bills don’t dig a hole in your pocket.”
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What this means is, Insurance is a premium that you pay to cover any unforeseen risks, which also implies that insurance in its purest form is an expense rather than an investment. Insurance, in India, is widely viewed as a tax-saving instrument. Most people put away an amount of money every year to “invest” in insurance—more specifically—life insurance. Of course, there are products like endowment plans, Money-back plans etc. which are insurance products camouflaged as investment products, not to forget ULIPs which were known for their charges than returns. Things get a bit murkier when insurance is considered more as an investment than as insurance, as it will neither serve your objective of investment nor insurance.
What is a term insurance?
Term insurance plans are a type of life cover (In fact, term insurance is the purest form of insurance). They give coverage for a fixed period of time. If the insured dies during the policy term, then the death benefits are paid to the nominee. The plans are particularly designed for securing the needs of your family.
The premium for term insurance policies is the lowest among all the insurance products because there’s no investment component and the full premium is used to cover the risk. There’s no maturity or survival benefit once the policy term ends. There could be some plans, offering a return of premiums paid, if the insured person survives.
Source: https://www.mymoneysage.in/blog/term-insurance-vs-endowment/
