Can I buy Life Insurance As An Investment?

What’s the first thing that comes to your mind when you think of life insurance? It provides financial security in the event of unexpected tragedies of life such as untimely death, right? While it’s no brainer that life insurance serves as a safety net that shields the dependents against financial stress when the sole breadwinner is gone. But is life insurance just a risk management tool, or can it also be used as an effective investment strategy with cash benefits? Let’s take a closer look.

Life insurance is a protection plan that provides the much-needed financial security to beneficiaries for a fixed tenure on the premium paid. If something unfortunate happens during that stint, the nominee will get the sum assured as a death benefit. However, if the term ends and the policyholder outlives the duration period, no one gets anything.

The insurance sector has, over the years, evolved and became customer centric. It has rolled out several products that cater to diverse risk profiles. There are many types of life insurance plans that not only provide financial security against unexpected death but also help the policyholder build a sizeable corpus. However, most life insurance plans can be categorized under four categories.

1. Term Plan
2. Whole Life Insurance Policy
3. Unit Linked Insurance Plans or ULIPs
4. Endowment Plans

Out of these, only the ULIPs and Endowment plans come with investment benefit apart from insurance coverage.

Policyholders can enjoy attractive tax benefits under life insurance coverage. A tax deduction of Rs.1,50,000 under Section 80C of the Income Tax Act, 1961 can be availed on the premiums paid annually. Also, the assured money allotted to the beneficiary as the death benefit and the amount received on maturity of the policy is exempted from income tax under Section 10 (10D) .

Given the many add-on benefits, the pitch for life insurance as a good investment option may sound promising. But in reality, the return on life insurance investment is not all that great and in many scenarios does not meet expectations. In fact, the stock market and other investment instruments generally offer a better return on the money invested over time.

So, what is the verdict? Most experts advise that life insurance should not be bought with a primary view of investment. It is important to look at the coverage, premium, and other features of the plan. It is only after you have met your primary objective of meeting your insurance coverage goals, should you look at the investment benefits.While some may believe that mixing insurance and investment is not a good idea, others may consider life insurance as an investment tool apart from providing insurance coverage. If you are thinking of using the life insurance for investment but a tad confused, seek guidance from qualified professionals to help you make an informed decision.

The information contained herein is generic in nature and is meant for educational purposes only. Nothing here is to be construed as an investment or financial or taxation advice nor to be considered as an invitation or solicitation or advertisement for any financial product. Readers are advised to exercise discretion and should seek independent professional advice prior to making any investment decision in relation to any financial product. Aditya Birla Capital Group is not liable for any decision arising out of the use of this information.