Term Plans are for Protection and Don’t Offer Any Savings Element
A term plan is necessary if a person wants to provide money to their loved one after their time. Other modes of leaving money for nominees can have complications due to the long legal procedures of claiming heirship through death certificates and other formalities. They also provide a higher assured sum as compared to the invested premium. But still, people think that it does not have any savings element, so refrain from acknowledging it as a savings plan. Here, you will know everything about why people think so and the actual savings elements in a term plan.
Why People Consider Term Plans as an Investment Plan without any Savings Element?
A term plan is the most basic type of life insurance, so it is not fair to expect much from a plan with such low premiums. This lack of extra features is what makes it a considerably bad savings plan. Given below are some of the major reasons why people consider them to be such investments without a savings element.
No Money Back Policy
Unlike a life insurance policy, a term insurance policy does not have a moneyback policy. So, at the term end, you will not get back any money that you paid as premiums. Because of this, people think that their investment into the plan proved to be a waste as it has no outcomes when the policyholder survives the policy term. And if there is no money back policy, then there is no question about interest rates or return on investment.
No Intermittent Payouts
Most insurance policies are also capable of providing intermittent payouts based on for whom the policy is and the type of the policy. For example, in the case of child plans, there are payouts at important life stages of the child. But term insurance has no such payouts or benefits during the term.
No Loan or Partial Withdrawal
You can also make partial withdrawals from the insurer in case of an emergency or take a loan with the policy investment as collateral. But term insurance does not allow such withdrawals or loans.
No Extra Rider Other Than Two Accident Riders
Term insurance only has two riders that are accident-related. So, you cannot opt for important riders such as critical illness cover in your term insurance plan.
No Surrender Value
The term plan also doesn’t have a surrender value. So, if you wish to surrender the policy beyond the agreeable limit, you will not get back any invested money.
All these points make the term plan seem like a plan with zero savings element and one which is only useful for life protection during the term. But term insurance does have a savings factor, Tax Savings. As per Section 80C of the Indian Income Tax Act,1961, you can claim up to INR 1,50,000 for relaxation in income tax. This relaxation is only applicable once a year for all premium payments made in that year. However, tax laws are subject to change from time to time.
If you consider these tax savings over the long years of investing in a term plan, you can save a lot of money. So instead of paying these sums as income tax, you can use them for other personal or family purposes. This is a legal and publicly encouraged tax reduction method that is only available through insurance plans.
Now you have a clear idea of the savings element of term insurance. This will help you make wise decisions while purchasing a term plan instead of a savings plan. The best way to enjoy the maximum savings from a term plan you must invest in plans from a good insurance company. s