Term Plans are for Protection and Don’t Offer Any Savings Element

Term Plans are for Protection and Don’t Offer Any Savings Element

A term plan is an essential financial tool for those who want to provide financial security to their loved ones after their passing. Although it may seem like a straightforward life insurance policy with no savings component, it offers several benefits that often go unnoticed. In this article, we will explore why some people perceive term plans as devoid of savings elements and shed light on the hidden savings potential they offer.

Why Term Plans Are Often Misunderstood as Lacking Savings Element

Absence of Money-Back Feature:

Unlike traditional life insurance policies, term insurance does not come with a money-back guarantee. Consequently, policyholders do not receive a refund of the premiums paid if they survive the policy term. This absence of a money-back feature leads individuals to believe that their investment in the plan is unproductive.

No Intermittent Payouts:

Many insurance policies offer intermittent payouts at significant life milestones or events. For instance, child plans provide payouts at key stages in a child's life. However, term insurance policies do not offer such periodic payouts or benefits during the policy term.

Inability to Make Partial Withdrawals or Obtain Loans:

Some insurance plans allow policyholders to make partial withdrawals in case of emergencies or use the policy as collateral for a loan. Unfortunately, term insurance policies do not permit such financial flexibility.

Limited Riders:

Term insurance typically offers only two riders, both related to accidents. This means you cannot opt for critical illness cover or other important riders in your term insurance plan.

Lack of Surrender Value:

Unlike certain insurance policies, term plans do not accumulate a surrender value. If you decide to surrender the policy prematurely, you will not receive any of the invested funds.

Tax Savings:

Despite the aforementioned limitations, term insurance does offer a hidden savings avenue through tax benefits. Under Section 80C of the Indian Income Tax Act, 1961, policyholders can claim deductions of up to INR 1,50,000 on their taxable income for premium payments made in that year. Although tax laws can change, this tax-saving feature can result in substantial savings over the years.


In conclusion, term insurance may appear to lack savings elements when compared to other insurance plans with more extensive features. However, it offers a valuable avenue for tax savings under Section 80C of the Indian Income Tax Act, 1961. By considering these tax benefits, individuals can potentially save a significant amount of money over the long term, redirecting these funds toward personal or family needs. It is essential to recognize the savings potential of term insurance and make informed decisions when choosing between term plans and traditional savings plans. To maximize the benefits of a term plan, it is advisable to select a reputable insurance company.

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