There invariably is the discussion of choice between Term plans and endowment plans when it comes to investing in life insurance. Should you invest in endowment plans for their dual benefits of savings and insurance, or should you rather be putting your money in term plans?
The answer depends on your individual situations and circumstances, of course. However, it is with the idea of bridging the gap between the two that the concept of convertible savings plans has come into place.
Term Life Insurance: A term plan often turns out to be lucrative for those in the early stages of their careers or those with nominal disposable income, since term life insurance
happens to be the more affordable of the two. However, when the lure of returns is overpowering, investment decisions tend to prefer endowment plans to their term counterparts. A realistic view would be that returns on endowment plans tend to be quite low, which leaves the decision to invest in Term Insurance
as a better alternative.
The convertible term plan: It is precisely to deal with this conundrum that the idea of convertible term plan has taken shape. For one, it allows you to go in for a conversion into Endowment Plan at a later point in time during the course of an insurance policy, when you may find it easier or more affordable to opt for one – which is the ‘convertible’ part of the equation.
The rationale for such a move also has to do with the fact that it would be much more expensive to buy insurance at a later stage in life, considering that mortality charges are invariably higher later during the lifecycle of an individual. The convertible plan suits the purpose, given the fact that you could choose to convert to an endowment plan later, without incurring any additional cost in the process. And the process is only made easier with the onset of online term plans, where you could get hold of term plans without budging from the comfort of your home.
Are convertible term plans viable savings options? That brings us back to the question of whether it is appropriate indeed to deal with such an option. The factor to bear in mind is that you would not be able to reap the benefits of convertible term plans unless you actually “convert” at a later point in time. In other words, if you choose a convertible plan and stay on with your term plan without exercising your right to convert, you may end up with a plan that is even more expensive than term life insurance.
Further, as the conventional logic goes, it makes better sense to invest in an online term plan and invest the money that you would have otherwise deposited into an endowment policy, into savings and investment options that have a higher rate of return.
Hence, while the answer to the question very much depends on what you want out of your investments, it makes sense to choose term insurance, which is nothing but insurance, for your insurance needs, and go in for a more rewarding investment option with the money that remains.