A Comparative Analysis of Term Insurance Vs Other Tax-Saving Instruments


In the realm of financial planning, selecting the right tax-saving instrument is paramount. Among the plethora of options available, term insurance emerges as a favoured choice. In this detailed examination, we will compare term insurance against other tax-saving instruments prevalent in India, exploring their respective features, benefits, and suitability for diverse financial needs.

Understanding Term Insurance

What is term insurance? Term insurance, a fundamental form of life insurance, offers coverage for a specified period, or term. Here are some key facets to consider:

  • Affordability: Term insurance typically provides higher coverage at lower premiums compared to other life insurance products. This affordability makes it an attractive option for individuals seeking comprehensive financial protection.
  • Pure Protection: Unlike investment-linked insurance plans, term insurance focuses solely on providing financial protection to the policyholder’s beneficiaries in the event of the policyholder’s demise during the term. It does not include any savings or investment components.
  • Flexibility: Term insurance policies offer flexibility in terms of coverage amount and policy duration. Policyholders can select the desired coverage amount and term based on their unique financial circumstances and goals.

Comparative Analysis with Other Tax-Saving Instruments

Let’s delve into a comparative analysis of term plan with other prevalent tax-saving instruments in India:

Public Provident Fund (PPF)

  • Tax Benefits: Contributions made to the Public Provident Fund (PPF) are eligible for tax deductions under Section 80C of the Income Tax Act. This provides individuals with an avenue to reduce their taxable income by investing in PPF.
  • Returns: PPF offers tax-free returns and is backed by the government, making it a relatively secure investment option. The interest rate on PPF is set by the government and is subject to change periodically.
  • Lock-in Period: The PPF account has a lock-in period of 15 years, with partial withdrawals permitted after the completion of the 7th year.

Equity-Linked Savings Scheme (ELSS)

  • Tax Benefits: Investments in Equity-Linked Savings Schemes (ELSS) qualify for tax deductions under Section 80C. ELSS provides investors with an opportunity to participate in the equity markets while enjoying tax benefits.
  • Returns: ELSS primarily invests in equity and equity-related instruments, offering the potential for higher returns over the long term. However, it also entails higher volatility compared to other tax-saving options.
  • Lock-in Period: ELSS has the shortest lock-in period among tax-saving instruments, with investments locked in for a minimum of three years.

National Pension System (NPS)

  • Tax Benefits: Contributions to the National Pension System (NPS) are eligible for tax deductions under Section 80C, with an additional benefit of up to Rs. 50,000 under Section 80CCD(1B). This dual tax benefit makes NPS an attractive option for retirement planning.
  • Returns: NPS offers exposure to equity, debt, and government securities, with returns linked to market performance. It provides individuals with an opportunity to build a retirement corpus through systematic investments.
  • Lock-in Period: While NPS has a long lock-in period until retirement, partial withdrawals are allowed under specific circumstances, providing some degree of flexibility.

Unit-Linked Insurance Plans (ULIPs)

  • Tax Benefits: Premiums paid towards Unit-Linked Insurance Plans (ULIPs) qualify for tax deductions under Section 80C, subject to a maximum limit. ULIPs offer a unique combination of insurance coverage and investment opportunities.
  • Returns: ULIPs allow policyholders to invest in various funds based on their risk appetite and investment objectives. They offer the potential for market-linked returns over the long term, along with insurance coverage.
  • Lock-in Period: ULIPs typically have a lock-in period of five years, after which partial withdrawals are allowed. This lock-in period ensures that individuals stay invested for the long term, aligning with their financial goals.

Factors to Consider Before Investing

Before selecting a tax-saving instrument, it’s essential to consider the following factors:

  • Risk Appetite: Evaluate your risk tolerance and investment objectives to determine the most suitable option for your financial goals.
  • Investment Horizon: Consider your investment horizon and financial goals when choosing between short-term and long-term investment options.
  • Liquidity Needs: Assess your liquidity requirements and the flexibility offered by different investment instruments. Ensure that your chosen instrument aligns with your liquidity needs and financial obligations.

Important Points to Remember

When investing in tax-saving instruments, keep the following points in mind: 

  1. Tax Implications: Understand the tax implications associated with each investment instrument, including tax benefits, exemptions, and treatment of returns. Ensure compliance with relevant tax laws and regulations. 
  2.  Costs and Charges: Be aware of any fees, charges, or commissions associated with the investment, as they can impact overall returns. Compare the costs and charges of different investment options to make an informed decision. 
  3. Financial Goals: Align your investment strategy with your financial goals, such as retirement planning, wealth accumulation, or risk protection. Choose an investment instrument that complements your financial objectives and helps you achieve long-term financial success. 


In conclusion, selecting the right tax-saving instrument is a crucial aspect of financial planning. While term insurance offers essential life cover and tax benefits, it’s essential to explore other options such as PPF, ELSS, NPS, and ULIPs to optimize your tax-saving strategy. By understanding the features, benefits, and suitability of each instrument, you can make informed decisions that align with your financial goals and objectives.

Remember to assess your risk tolerance, investment horizon, and liquidity needs before investing, and seek professional guidance if needed. With careful planning and prudent decision-making, you can build a robust financial portfolio that secures your future and helps you achieve your financial aspirations.

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