Mutual Funds with term insurance: A smarter alternative to traditional life insurance investments

Discover why combining mutual funds with term insurance can provide greater flexibility, lower premiums, higher returns, and tax benefits over life insurance.

Simple Investment Hack

Regarding financial planning, life insurance is often considered an essential element. However, there may be more effective ways to invest your money for long-term growth than traditional life insurance policies. Instead, combining mutual funds with term insurance can be a better alternative.

A mutual fund pools money from several investors to purchase securities such as stocks, bonds, and other assets. A term insurance plan provides financial protection to the policyholder's nominees in the event of their untimely demise. Combining these two investment options, the resulting strategy can offer several benefits over traditional life insurance investments.

Also read: Best Apps to Buy Direct Mutual Funds

Flexibility In Investment

Traditional life insurance policies typically have fixed premiums and provide limited investment options. In contrast, mutual funds with term insurance offer greater flexibility in investment choices. Investors can choose from a wide range of mutual fund schemes, which provide varying levels of risk and return. They can also adjust their investment amount and horizon based on their financial goals and risk tolerance.

Lower Premiums

Another advantage of combining mutual funds with term insurance is lower premiums. Term insurance policies typically have lower premiums compared to traditional life insurance policies. Therefore, by combining mutual funds with a term plan, investors can enjoy life insurance benefits while investing in potentially high-return mutual funds. This allows them to maximise their returns while minimising their insurance costs.

Higher Returns

Mutual funds usually provide higher returns than traditional life insurance policies. This is because mutual funds invest in a diversified portfolio of assets, which can offer higher returns over the long term. In contrast, traditional life insurance policies invest primarily in fixed-income securities, which typically offer lower returns.

Tax Benefits

Investing in mutual funds with a term insurance policy also offers tax benefits. Investors can claim tax deductions on their premium payments up to a maximum of Rs. 1.5 lakh. Additionally, returns from mutual funds held for more than a year are considered long-term capital gains and attract a lower rate than short-term capital gains (10% LTCG as opposed to 15% STCG in equity funds, resulting in significant savings.

Surrender Charges

Traditional life insurance policies often come with surrender charges if you exit the policy before maturity. For mutual funds, an exit load is charged if you exit the fund within the period mentioned. While pure-term life insurance plans do not have a surrender value, their benefit lies in the low premium cost and high payout in the unfortunate event of the policyholder's death.

Also read: Looking To Invest In Term Insurance: Zero Cost Term Plan Can Be The Right Choice For You!

It's important to note that the recommended strategy is to opt for a pure-term plan and mutual fund investments. That way, you enjoy the higher returns and flexibility of the mutual funds and the low premium and high coverage of the term insurance plan.

In conclusion, combining mutual funds with term insurance can be a wise investment strategy for long-term growth and financial protection. The flexibility in investment options, lower premiums, higher returns, tax benefits, and no surrender charges make this strategy an attractive alternative to traditional life insurance investments. However, mutual funds with term insurance are subject to market risks, and investors should carefully consider their financial goals and risk appetite before investing.

 

NEWSLETTER

Related Article

Premium Articles