Term Plans Vs Gold
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Term insurance is a life insurance policy which covers the risk of premature death. When you buy a policy you choose the sum assured and the coverage duration. Thereafter, in case of death during the policy tenure the sum assured is paid to the nominee. Usually, term insurance plans do not have any maturity benefit. That means, there’s no pay-out, if the insured survives till the end of the policy duration.
Gold continues to be a popular investment for ages. It has been respected all over the world for its value and rich history. People have wanted to hold gold for various reasons. With various innovations, gold trading has evolved from physical gold to virtual trading. However, all forms of gold are equally attractive for investments.
Benefits of Term Insurance
A term insurance policy is said to be the most important coverage which you should take. It should be an important part of your financial portfolio after which you can invest in other avenues for wealth creation. The reasons why term insurance plans are a must are as follows –
1. They provide financial security
The primary benefit of a term insurance policy is the financial security that the policy provides. The policy covers the risk of premature death and secures the family against possible financial repercussions which might incur if the breadwinner dies prematurely. So, if you invest in a term insurance plan, you can ensure financial security of your family members even in your absence or in case of an eventuality.
2. They help in the fulfilment of your life goals
Term insurance plans have the lowest premium rate since they cover only the risk of premature death. These low rates help you opt for high sum assured levels which would be sufficient to take care of your financial goals. Thus, in your absence, the considerable coverage amount can give your family funds needed for your child’s future, their lifestyle needs, paying home loan, buying a home or even for retirement planning.
3. They provide an all-round protection
Gone are the days when term plans provided coverage only against death. Today’s term insurance plans have evolved and allow you different rider benefits to enhance your coverage. Some benefits are inbuilt while some are available at an additional cost. These riders help in providing an all-inclusive coverage so that your loved ones have financial assistance in emergencies other than death. For instance, you can opt for a personal accidental death to enhance the base term plan coverage.
4. They give tax benefits
Term insurance plans, like other life insurance policies, offer tax benefits on the premiums that you pay. Premiums paid are allowed as a deduction under Section 80C of the Income Tax Act, 1961 up to a maximum of INR 1.5 lakhs. The death benefit paid by the plan is completely tax-free. Moreover, if you opt for return of premium plans, the premium refunded on maturity would also be a tax-free income under Section 10 (10D) of the Income Tax Act, 1961.
Reasons That Make Gold A Good Investment
Here’s a list of reasons why gold still shines as an investment:
Gold has maintained its value
Throughout the years, gold has held on to its value and people look at it as a way to pass on and preserve wealth from one generation to another.
Holds a good price when the reserve currency loses its value
Gold prices rise when the US dollars or the reserve currency falls. Gold has been termed as the safe haven for this reason. People start flocking to the gold’s security at the time of fall in the value of reserve currency.
Hedge against inflation
Gold has been an excellent hedge against inflation as the prices rise when the cost of living increases.
Gold’s purchasing power soars during deflation
Prices decrease and business activity slows down at times of deflation and the economy gets burdened with excessive debt. The relative purchasing power of the gold soars while other prices drop.
Crisis commodity at times of geopolitical uncertainty
When the world tension rises, people turn to relative safety. When the confidence in governments is low, the gold prices are often seen to be rising. The European Union crisis gave way to the major gold price movements this year.
There is a supply constraint
Most of the gold supply since the 1990 has come from the sale of gold bullion from the central bank’s vaults. But there has been decline in the supply from the central bank and the gold mining output has been declining as well. It will take another 5-10 years to bring a new mine into production. Reduction in the supply of gold increases the prices of gold.
Increase in demand
Increased wealth of the emerging economies boosted the demand for gold. In most countries, it is intertwined into its culture. Indians buy a lot of gold especially during the wedding season and China buys gold bars as they are a traditional form of saving. The gold demand has been growing among the investors as well.
Used for portfolio diversification
Key to diversification is to invest in products that are not closely correlated to each other. Gold happens to have a negative correlation with stock and other financial instruments. Hence, it is a perfect choice to diversify your portfolio and to ensure that you are reducing the overall volatility and risk.
Conclusion
It would be a mistake if we declare any one of them as the clear winner. The decision whether to invest in gold or a term plan depends on many factors such as the goal of investment, risk appetite, investment amount at disposal and so forth. A wise approach is to distribute your funds proportionately between gold and term plans.
Also Read: Max Term Insurance Policy Benefits
