Term Plan vs. Investment Plan: What to Know

What are Term Plans?

A pure life insurance cover is what term insurance is all about. A life insurance policy that focuses purely on life protection in return for a premium is a term plan. In this policy, the nominee or the family receives a lump-sum death benefit upon the death of the life assured. In the event of the life assured’s death during the policy term, the nominee or family becomes eligible to claim the policy benefits.

Typically, term plans do not offer any maturity or survival benefit. However, if you choose the term return of premium policy (TROP), it provides survival benefits. If the life assured (who may also be the policyholder) survives the policy tenure, they get back the premium paid throughout the policy tenure. However, the premium of TROP is usually higher than that of a regular term plan.

What are Investment Plans?

Investment plans in life insurance are products that also offer investment options along with life insurance. This means you get the dual benefit of both life protection and wealth creation. ULIPs (Unit-linked Insurance Plans) are one such example.

ULIPs, or Unit-Linked Insurance Plans, combine life insurance coverage with investment opportunities, offering the policyholder dual benefits in one plan. In this policy, a part of the premium goes towards the life insurance coverage, and the remaining part is invested in market-linked funds. You are free to choose the type of market funds, like equity, debt, or hybrid. Depending on your preferences, you may switch between these funds.

Typically, ULIPs have a lock-in period of at least 5 years.

Differences Between Term Plans and Investment Plans

Here is a table explaining the major differences between the term plans and investment plans. Read on for a concrete understanding:

Apart from ULIPs, there are several other life insurance plans that offer maturity and survival benefits. These are:

Endowment plans

A part of the premium goes into savings, and the rest is used to provide life cover. The life assured receives the savings upon survival or as a maturity benefit upon surviving the policy. It goes to the nominee if the life assured passes away.

Child-Plans

A policy where the life assured receives life coverage and the child/beneficiary receives financial protection. Even if the life assured dies during tenure, the child continues to receive the payouts as agreed.

Money-back Plans

In money-back plans, the life assured receives regular payouts during the policy tenure. Upon the death of the life assured, the nominee receives death benefits.

Which is Best: Term Plans or Investment Plans?

Term plans and investment plans, as discussed above, fulfil different requirements. Both policies have specific features and benefits. So, the question that comes up is which one is the best? Well, there is no one-size-fits-all when it comes to life insurance policies. That's because people may have different financial goals.

If you are someone who wants to go with an affordable choice that provides only life insurance coverage, term plans can be a good option. However, if you can go with a higher premium or are willing to enjoy investment returns over a period, investment plans are the right choice.

Along with typical investment plans, you also have the choice of endowment plans, child plans, and money-back plans. Each of these has specific financial goals, like child plans, which are good for young parents who want to protect the financial future of their child even in their absence. A money-back plan gives you regular income, and with endowment plans, you can easily save over time. So, choose wisely depending on your preferences, family's needs, and future financial goals.

Over To You

Term insurance and life insurance are two popular types of life insurance plans. While term plans are pure life insurance, investment plans have added investment elements. By understanding your personal financial goals and your family's needs, it becomes easier to choose one.

At Jio Insurance Broking, we make the decision easier for you. You can easily compare various plans to choose the most suitable life insurance plan for yourself and your family. Connect with us today and secure the financial future of your loved ones.