Is insurance for an investment or an expense?

Insurance for an Investment

They say every story has two sides. The same situation can look different for two people with completely different points of view. Some may see going to the cinema as a waste of time, others may see it as a fun and meaningful way to spend an evening and have fun.

Often the same reasoning applies to the way we spend our hard-earned money. A purchase that seems necessary to one may seem trivial to another. The difference between what can be considered an “investment” and an “expense”. An investment is an expenditure that helps us provide for our future, while an expenditure is generally an essential expenditure that does not necessarily provide any future value. This is an especially important distinction when one is considering buying something as important as term insurance. But how do you know if this is the right buy for you?

What is the term insurance and also what are its benefits?

Term insurance is a type of life insurance in which the candidates, usually the family of the person, are provided with insurance coverage for a certain period of years. In the event of the death of the insured during the work of the policy, the death compensation is paid in the form of a lump sum.

Compared to other types of life insurance policies, there are many benefits to term insurance plans. It is also the most cost effective way to take advantage of the tax benefits related to insurance. Its main purpose is to provide comprehensive financial security to one’s family in the event of the individual’s death. This financial guarantee comes in the form of providing for any financial contingencies that may arise in one’s absence such as loans and debts.

It should be noted that term insurance plans are not a means of wealth creation, nor do they provide the income needs of the family while the policy holder is alive. For wealth creation, ULIP is something you can look for, which we can discuss later.

Know if term insurance is right for you?

Manav was discussing his plans to buy insurance coverage with his older sister Gauri. He told Gauri that at first, he considered buying a term insurance policy. However, someone at work told him that since term insurance doesn’t provide any entitlement benefits, it might not have been the right investment to make. However, Gauri had a different viewpoint to share with Manav on the issue. There were many benefits of term insurance he was overlooking. Also, some term insurance plans provide entitlement benefits.

She told Manav that since he was still in the early stages of his career, paying high premiums might not be possible for him at the moment. Compared to other types of insurance plans, premiums for a term insurance policy are almost always affordable and straightforward. They are also more flexible than cash value policies so that if he chooses to transfer or withdraw from one, he can do so without any hassle. So, while there may not be an investment component in an insurance policy, he will be able to provide a valuable and cost-effective way of providing coverage for his family.


So, while term insurance plans may not seem like an “investment” in monetary terms, in the long run they can be the right type of investment for your specific situation. Aside from the case of Manav described above, here are some situations for which short term insurance plans may be ideal:

  • If you have a moderate income and want to ensure the best possible coverage for your family within that budget.
  • If you want insurance coverage and tax benefits, but also want to be able to save money you have to spend on higher premiums for cash value insurance. You may want to invest the money you save in other means of creating wealth, such as savings plans.
  • If you have taken out a large loan, or mortgaged your home, or invested in new projects. Fixed-term insurance policies help efficiently provide candidates with the coverage they need in the event of your death, to pay off any financial obligations.
  • If you are starting a new business, investing in a term insurance policy is more economical option for you than cash value policies. You will be able to keep the difference and use it to provide cash flow for your business.

Term insurance may not come with the savings component of a typical cash value insurance policy. However, depending on how you want to plan your future and your finances, it can still serve as a way to invest in another aspect of the word. Given how affordable, simple and effective short-term insurance coverage can be, it is unfortunate that only one in five people in India ever benefits from term insurance.

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