Equity as a one time investment plan vs Term Life Insurance: Which one to choose?

When it comes to protecting your financial future, deciding on the best investing strategy can be overwhelming. Term plans and equities are two common options but on opposite ends of the investment spectrum with each having its own set of rewards and risks. While equities are a good alternative for aggressive returns, term plans provide a level of long-term financial security that no other investment can match. So which one will you choose? If you’re unsure which one to choose, let’s break down both alternatives so you can make an informed decision.

What is equity stock?

The phrases equity and stock are used interchangeably, yet there is a subtle difference between the two. Investing in shares is purchasing a stake in a company and participating in its future growth and earnings. While equities can be more volatile investments, this one time investment plan also has the potential for bigger profits over time.

Both reflect ownership in a corporation and can be purchased or sold on stock exchanges. Equity, for example, refers to ownership once debts are paid off, whereas stocks only refer to shares purchased and sold on the stock market.

Equity investments can be made directly or through equity mutual funds and ULIP plans. One benefit of doing it via mutual funds is that you do not need specialized knowledge to monitor progress because qualified portfolio managers will do so and provide you with the best possible returns. You can also trade directly if you understand and follow stock market trends. Equities play an important role in maintaining a well-balanced investing strategy. Your age, risk tolerance, and investment goals all influence the percentage of your portfolio allocated to equities.

1. Potential for High Returns: Equity investments are primarily made to generate wealth, either in terms of capital gains or value. Over time, equities have outperformed the majority of asset types. When equities generate capital gains, you receive money in the form of dividends, whereas price increases allow you to sell shares at a higher price and benefit by keeping the difference.
2. Liquidity: Equities are generally easy to buy and sell, giving you the freedom to access your funds as needed.

Drawbacks of Equity

• Market Volatility: The stock market is unpredictable. Prices can fluctuate significantly in the short term, resulting in potential losses. This is the reason why most people prefer ULIP plans as it comes with the insurance component as well as provide returns. 
• Requires Knowledge: Successful equity investing frequently requires research and a thorough understanding of market trends, which can be intimidating for beginners. If one doesn’t have the risk appetite or time to gain the knowledge, they can also choose other options such as ULIP where they will be assigned fund manager who will do the switching and investing for you. 

What is a term plan?

A term plan is a form of life insurance policy that offers coverage for a set period of time, typically between 10 and 30 years. If the policyholder dies during this term, the beneficiaries will get a death benefit. If the policyholder survives the period, there is no payoff. The major purpose for buying the term plan is to offer financial security to loved ones in the event of unexpected death.

Benefits of Term Plans

1. Affordability: In general, term plans are less expensive than other types of insurance. Since the term plans come with low premiums, it makes it easier for one to get enough coverage. 
2. Simple to understand: Term plans are one such life insurance plans that are simple to understand for anyone. One can educate oneself easily by visiting the mobile app and learn about life insurance from there and once satisfied can even buy it from there. If you, unfortunately, pass away during the policy period, your family will be assured of the sum.
3. Peace of Mind: Knowing that your loved ones will be taken care of even in your absence provide emotional comfort to the policyholder.

Drawbacks of Term Plans

• No Cash Value: Unlike whole life insurance, term life insurance plan do not have any cash value. If you outlive the coverage, you will not receive a refund on your premiums.
• Renewal Risks: If you opt to renew at the end of the term, your premiums may increase, especially if you are older or your health changes.

How do you make the right choice between the two?

So, how do you choose between term plans and stocks? Here are some important considerations:

1. Your Financial Goals: If your major goal is to provide financial security for your loved ones, a term life insurance plan may be better suited. On the other hand, if your goal is to accumulate wealth over time, equity is good. However, if you are looking for both elements such as insurance and investment, you can choose ULIP. The best place to buy ULIP plans are from the mobile application because of the fact you can track the progress of funds on the go and when required can switch the funds as needed.
2. Risk Tolerance: Evaluate your comfort with risk. A term life insurance plan provides stability and predictability. Consider investing in equities if you can handle volatility and are ready to take measured risks in exchange for greater profits.
3. Time Horizon: Consider your investment horizon before choosing between the two. Term plans are often designed for medium to long-term needs. Equities, while long-term investments, can offer flexibility for shorter investment periods.
4. Diversification: You do not have to select one over the other. Many financial consultants propose a balanced portfolio that includes term insurance for protection and stocks for growth.

So we are saying,

Choosing between a term plan and equities ultimately depends on your own financial condition, goals, and risk appetite. Take the time to analyze your priorities and consider talking to a financial professional to develop a strategy that corresponds with your needs. Remember, ensuring your financial future is a journey, and the correct combination of products can set you on the route to success.