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Term Insurance vs. Market Returns: Optimising your investment portfolio in India

A suitable investment plan is necessary to help you meet your financial goals

BRAND CONNECT | PAID POST

Published: Nov 25, 2024 04:30:06 PM IST

New Delhi [India], November 19: When building an investment portfolio, understanding the roles of market returns and term insurance is crucial. Grasping their differences enables you to comprehend the advantages and disadvantages you would face in your investment journey. Besides, based on your financial objectives, you can choose the one that helps you fulfil your aspirations.

If you are someone who is planning to invest to meet financial goals, read on to learn the differences between term insurance and market returns to help you optimise your investment plans.

How is Term Insurance Different from Market Returns?

Term insurance is a type of life insurance product that provides you with financial security for a predetermined tenure. It is one of the most affordable life insurance policies, where the policyholder pays premiums to get a large life cover.

In case of your untimely demise within the tenure, your dependents will receive a lump sum as the death benefit. This payout will enable them to fulfil their daily expenses and other financial commitments. Investing in term insurance plans ensures comprehensive financial protection for your dependents. Additionally, you can avail yourself of tax benefits under Section 80C of the Income Tax Act.

On the other hand, market returns simply refer to the value you earned after your investment over time. These are typically associated with investments in the stock market, mutual funds, bonds, etc. Market return can be positive, which means you have made a profit on your investment. However, it can also be negative, resulting in a loss of investment. Besides, market returns can include dividends, interest payments, and stock price changes.

Therefore, investing in term insurance plans and stock markets can yield different outcomes depending on the factors that affect them.

How Can You Optimise Your Investment Portfolio in India?

The key to appropriate financial planning is understanding your investments. You must consider a few crucial factors whenever you decide to build your investment portfolio. Go through the following points to learn about the same:

• Determine Your Financial Goals

Your financial objectives define your investment portfolio. Hence, the first and foremost step is to analyse your requirements. These include considering your family's daily expenses, any financial commitments you might have, liabilities, sponsoring your kids’ higher education, marriage, ambitions, etc.

You need to determine the type of investment that works best for you based on your financial objectives.

• Analyse Your Risk Appetite

Every investment has risks associated with it. However, the extent of risk tends to differ between term insurance plans and usual stock investment plans. Based on market volatility, the risk associated with stock investments can range from low to moderate to high. In contrast, the sum assured of a term insurance plan is not subject to market fluctuations and remains constant throughout the predetermined tenure.

• Evaluate Performance

You must consider researching and evaluating the performances of both term insurance policies and stock market returns.

While you can opt for additional benefits to receive financial coverage for permanent disability, critical illness and more, market returns can be positive or negative according to market fluctuations. So, assess and choose your investment option wisely. You can also connect with a professional or an experienced individual in similar fields.

• Consider Tax Benefits

You need to know the tax advantages you can get with your investment. Term insurance policyholders can save a substantial amount of their total taxable income. On the other hand, the tax applicable to market returns depends on various factors like the tenure of investment, monthly investment amount, etc.

• Check Your Asset Split

Awareness of your asset split is also essential when optimising your investment portfolio. Consider factors like age, current annual income, expected earnings increase in the coming years, financial liabilities, risk tolerance, investment horizon, etc. This will enable you to understand how and where to allocate your assets, manage risk, and diversify your investment portfolio.

The Bottom Line

To wrap it up, individuals seeking options to secure their dependents in their absence financially must opt for a suitable investment plan. Both term insurance and stock markets are good options for investment; however, each comes with its own set of advantages and disadvantages. Evaluate your needs, risk appetite, and affordability and choose the best option for your financial planning.

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