Term life insurance, by definition, offers coverage for a fixed term, and charges a small amount as premium. It does not promise returns at regular intervals, nor does it provide any amount on maturity. 'Then how is it an investment, and not an expense?' you may ask.
While it is true that a term life insurance policy does not provide any returns on or before maturity, it does offer a very important benefit: it covers your life.
If an unfortunate event takes place, it gives a lump sum amount (the sum assured) to your family. So, in a way, by buying term insurance, you are 'investing' in securing your family's future, and ensuring that loved ones meet their financial expenses in case you are not around.
How does it work?
When you buy a term life insurance policy, you pay a certain amount to the insurance company regularly, which is known as a premium. There are many people who buy life insurance policies and pay premiums regularly. Over time, the insurance company collects these premiums, and uses this amount to provide financial security to your family in case of an unfortunate incident.
Investing in term life insurance
Unlike money back insurance policies, term life insurance does not provide returns; premiums paid towards a term policy are used exclusively to cover your life.
However, the peace of mind, convenience and financial security it provides in case of an unfortunate event makes it an important investment that you need in order to protect your and your family's future.