Term Insurance And SIP: What's the Difference?

There are several types of investment tools available in the market and 2 popular investment tools are Term Insurance plans and SIP (Systematic Investment Plan). Term insurance plans are known to provide financial protection to your family in case an unforeseen event takes place and SIP are systematic investment plans which are a type of mutual fund investment strategy. Below mentioned is the difference between term insurance and SIP:

• Term Insurance: Term Insurance are pure protection plans which provide financial security to the family of the life assured in case of an untimely demise of the life assured during the policy tenure. This type of life insurance policy provides a death benefit which can be utilised by the family of the life assured during difficult times to fulfil their future financial needs and pursue their dreams.

• SIP (Systematic Investment Plan): SIP is also known as Systematic Investment Plan which is a strategic mutual fund investment tool. SIP is a disciplined investment tool that allows a person to invest a decided amount at pre-decided intervals such as monthly,quarterly,half yearly or yearly. SIPs have risk involved as they are market linked investment tools. 

Advantages of Purchasing Term Insurance Plans

Following are the advantages of purchasing term insurance plans:

• High Coverage at Affordable Price: Term insurance is widely known to provide high coverage at nominal premium price. The premiums for term insurance plans are quite affordable and the life assured has the flexibility to choose the policy term or the premium payment term. 

• Additional Coverage: Under term insurance plans you can add riders which provide additional coverage. You can add these riders in your term insurance policy at an additional premium. Some commonly preferred riders are Accidental Death, Accidental Disability/Dismemberment, Critical Illness, Waiver of Premium, Surgical Care, HospiCash etc. 

• Financial Security: Under term insurance plan a death benefit is provided to the beneficiary in case of an untimely demise of the life assured during the policy term. This plan offers financial security to the family of the life assured which can help the family of the deceased to fulfil future financial requirements. 

Advantages of Investing in SIPs

Below mentioned are the advantages of investing in SIPs:

• Simple to Understand: When you choose to invest in SIPs you can start investing in small amounts and watch your investments grow. You can start investing in SIPs with a minimum investment of Rs. 500. SIPs are very simple and convenient to track , they also encourage disciplined investment habits. 

• Flexibility: SIPs are very flexible, they are open ended funds. SIP can be withdrawn as per the choice of the investor. The investor can withdraw the full amount or partially withdraw your investment as per your requirement without bearing any losses. The investor can choose to increase or decrease the amount of investment. 

• High Returns: As compared to other market linked investment tools such as recurring deposits or fixed deposits, SIPs help the investor to generate higher returns during market lows with the help of the power of compounding. 

Term insurance and SIPs are two different types of investment tools. Above mentioned aspects can help you understand the difference between the two. 

Also read - Different Types of SIPs in India

Disclaimer: This article is issued in the general public interest and meant for general information purposes only. Readers are advised not to rely on the contents of the article as conclusive in nature and should research further or consult an expert in this regard.