Term Insurance A Waste Of Money ? :

It is a general perception amongst majority of investors that taking a Term Insurance is a waste of money. The main argument behind such perception is that there will no return on investment on maturity. But what people do not realize is that Term Insurance is the only medium of getting financial protection which is the first step of financial planning, at an affordable cost.

Let us take an example :

Mr X and Mr Y are good friends aged 27 years. Both of them work in the same organization, have similar lifestyle and expect to maintain the same standard of living in future too. They want to invest around ` 1,30,000 per annum. Mr X decided to buy a Term Insurance plan for 35 years. He opted for ` 50 Lakhs as Sum Assured. The annual premium payment on this term plan is ` 10,000. He has left with ` 1,20,000.

His friend, Mr Y thinks that buying a Term Insurance Plan is a waste of money. Hence he goes for an Endowment Insurance Plan from a leading Life Insurance Company. He too opted for ` 50 Lakhs as Life Cover for 35 years. He has to pay ` 1,30,000 per annum as premium amount.

Mr X invests the remaining ` 1,20,000 amount in Public Provident Fund and/or Mutual Fund SIPs.

Let us see what would be the expected returns after 35 years for both of them :

Details	Mr X's Case Term Plan, PPF and MF SIP	Mr Y's Case Endowment Plan
Age	27 Years	27 Years
Policy Term	35 Years	35 Years
Risk Cover	`50,00,000	`50,00,000
Premium Per Year	`10,000	`1,30,000
Investment Per Year	`1,20,000	`1,30,000
Tax Benefit Eligible	Yes	Yes
Expected Returns	10%	8%
Maturity Return	`3,74,79,111	`1,54,04,982

Considering Lowest Rate For PPF MF SIP Combination and

Highest Rate For Endowment Plan

From the above illustration it is clearly evident that by investing in PPF and / or MF SIPs Mr X gains more than double that of Mr Y and enjoys the same life risk cover for the same term

So we can conclude that buying a Term Plan IS NOT a waste of money, rather it should be the first step towards financial security