A reader writes-in:

Is it worth taking term insurance when you’re in your late 30’s? Let’s say I purchase term insurance for a sum assured of 50 lacs and for a period of 22-years. The yearly premium is around 18,000 which means I will be losing nearly 4 lacs by the end of the policy term. Can you suggest a better option so that I am covered on both insurance and investment? I am not interested in other types of life insurance schemes.

Now I fully understand that the purpose of term insurance is death benefit to family who are dependent on me. My only worry is paying such high premiums and not earning any returns. It’s really pinching. Please share if you have any thought that covers life and gives good returns so that my hard earn money does not go to insurance company.

First things first. When you have family dependent on you, term insurance is always great to have. Irrespective of your age — but only so long as you can afford to pay the premium. Next, as you have correctly pointed out, term insurance is a pure-risk cover. You (and several others) pay X amount to Insurer Y in the hope of your dependent family receiving Z (a very high multiple of X). Since Z is a very high multiple of X, it’s not fair to also expect returns on X. You give up earning returns on X so that your dependent family can get Z.

Now, there are indeed some term insurance schemes that do offer a Return of Premium (RoP) (such as this one). Perhaps this might be what you’re looking for. But do note that the premium on RoP-term schemes will be higher than that on non-RoP term schemes.

Here’s another thought. Perhaps you could also stagger/ladder your term insurance purchase. Say instead of buying one term plan for one big amount in one go, you could buy multiple term plans for smaller amounts and with varying maturity periods. This way, as you slowly build your own safety-net or self-insurance corpus, you can easily drop one or more term plans and hence reduce your premium outgo. This does however require some upfront thinking and planning.

This directly leads to a much broader question: Should you invest to [self-] insure or should you insure to invest? Too many of us think of investment as a great side-effect of purchasing insurance (because it is marketed that way and so we obsess over ULIP NAVs!) whereas it should be the exact opposite. But how does investing — not only your money but also your time and your skills — with the purpose of becoming self-insured in most aspects of life sound? When you are self-insured you stop worrying about 99% of the things that generally keep people awake. Very easy to say, not that easy to do, but definitely doable if you keep chipping away at it.

What do you think?