In a term insurance plan, the sum assured is paid on death within the policy term and there is no maturity value.
If you are buying a term insurance policy, there are ways not only to save on the premium but also to grow the savings into a big corpus. What you need to do is to opt for an online term insurance plan instead of buying it offline. Online term insurance plans have lower premium compared to the offline plans. The savings in terms of lower premium can then be invested in equity mutual funds over the long term and may help you save in lakhs.
In a term insurance plan, the sum assured is paid on death within the policy term and there is no maturity value. The premium paid is decided as per the gender, age of the buyer, the sum assured and the tenure of the policy and it varies across different life insurance companies. So, even for the same person and on the same parameters of age, term and sum assured, the premium will vary across insurers.
Calculation of savings
Let us assume the annual premium on the offline term plan for a 30-year old for a Rs 1.25 crore of sum assured (life cover) is Rs 16000, while the online version comes at an annual premium of Rs 12000 ( excluding taxes for both plans)
The annual difference of Rs 4,000 ( Rs 333 per month) looks a small amount, however, if invested at an assumed growth rate of 12 per cent over 30 years, yields approximately Rs 11.45 lakh!
Remember, if you opt for an offline term plan, you would have paid Rs 4.8 lakh ( Rs 16,000 x 30 years) by the time the tenure ends after 30 years. There is no maturity benefit in a term insurance plan, however, merely by buying a term plan online, on survival, nearly Rs 11.45 lakh is the fund value from equity mutual fund schemes.
The actual premium and the difference between offline and online plans may vary. The objective is to save on premium cost and invest the difference for meeting long term goals.
Here’s the flow chart for accumulating Rs 11.45 lakh merely by opting for an online term insurance plan instead of an offline plan.
Step 1: Choose your preferred insurer
Step 2: Find out premium at your age, sum assured, tenure for both online and offline term plan
Step 3: Estimate the difference in premium (D)
Step 4: Opt for online term insurance plan
Step 5: Start investing the difference (D) in one or more equity mutual funds for the tenure equal to term insurance plan
On death before the end of term of online term insurance plan, the nominee will get the sum assured and the fund value of mutual funds. On surviving, the investor gets no maturity from online term insurance plan but gets the fund value from the equity mutual after redeeming it. Had one bought the offline plan, there would not be any maturity value. Merely by opting to buy term plan online, one can accumulate a decent amount of money, literally out of thin air.