Can additional Investment replace Term Insurance?
When it comes to insurance, it is still looked at as an unnecessary expense. Particularly for Term Insurance, the key argument is, in case the policyholder survives the policy term, there are no returns after paying premiums for a very long duration. If the amount equivalent to the term insurance premium is invested in an equity asset class, the returns could be significant.
Firstly, one should understand that the benefits of Insurance and Investments are completely different from each other. Both are important from one’s financial planning perspective. In the case of individuals having inadequate insurance, it is often seen that their family’s long-term financial goals are compromised in the case of an untimely eventuality.
Let us see an illustration of how Insurance and Investment work:
|
Insurance Policy |
Equity Investment |
||
|
Age of policyholder |
35 |
Age of Investor |
35 |
|
Premium Term |
25 Years |
Investment Period |
25 Years |
|
Monthly Premium |
1,772 |
Monthly Investment |
1,772 |
|
Total Premium |
5,31,450 |
Total Investment |
5,31,450 |
|
Sum Assured |
2,00,00,000 |
Returns @ 12% |
30,16,910 |
It can be seen from the above illustration that, a term insurance policy, in the case of the untimely death of an individual, can provide better financial support to the beneficiary. In this case, it is more than 6.5 times!!
There are additional benefits of insurance such as the sum assured is completely tax-free in the hands of its beneficiary. Also, the premiums paid by the policyholder are eligible for 80C deductions. In the case of the investment, the returns are not guaranteed and are taxable in the hands of the beneficiary.
Hence it is very important to purchase adequate insurance to protect the accumulated wealth and financial safety of loved ones!!
Investment cannot replace the need for insurance and vice versa!!
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