Mis-selling is the biggest scam in life insurance — Expert explains what you actually need

An insurance plan is a vital tool that can protect you and your family from life’s uncertainties. A term insurance plan is a pure life insurance policy that offers financial protection to beneficiaries in the event of the policyholder’s untimely demise. It does not accumulate any savings or investment returns.

Insurance expert Nikhil Jha, in a social media post, noted that policyholders should only go for term insurance. One of the reasons he highlighted that it’s pure protection — no returns, no gimmicks, just solid financial security for your dependents if something happens to you.

"Life Insurance Gyan:- Term life insurance is the only life insurance to buy. Don't get fooled by LIC/other insurer agents selling policies with guaranteed money after many years. Mis-selling is the biggest scam in life insurance," he wrote on X. 

Jha said that many people fall into the trap of buying expensive endowment plans, money-back policies, or guaranteed return schemes sold aggressively by LIC and other insurance agents. 

These policies promise maturity payouts after 20–30 years, but what they don’t highlight is the poor returns (often 4–5%), high commissions, and long lock-in periods. 

In most cases, these returns don’t even beat inflation. 

Term insurance in current times 

Term insurance is a more cost-effective option compared to other life insurance plans, ensuring that your family is not financially burdened in the event of your death during the policy term. On the other hand, life insurance plans with both maturity and death benefits typically come with higher premiums. However, term plans can be customized to meet your specific needs.

In contrast, whole life insurance plans offer a combination of investment and protection for the entirety of the insured's life. These plans usually have a maximum age limit of 100 years and provide the added advantage of cash accumulation over the policy's duration. Additionally, policyholders have the option to include critical illness insurance riders for increased coverage against unexpected medical emergencies.

Life insurance offers not only life coverage but also the chance to accumulate wealth through savings or investment options. Term insurance, on the other hand, provides financial security for a set time period at a more affordable rate. Both types of insurance necessitate the payment of a premium, which is a predetermined sum in exchange for the guaranteed benefits.
 
Life Insurance Plan vs Term Insurance Plan

A life insurance plan provides financial security for your family in the event of your passing. It also offers a cash accumulation feature to support your future financial goals. Depending on the type of plan chosen, the policy term can range from 5 to 30 years or even a lifetime. In the unfortunate event of your death during the policy term, your beneficiaries will receive a lump sum death benefit. This amount can be used for various financial expenses such as debt repayment, children's education, medical bills, or daily living expenses.

Term insurance differs from other types of life insurance in that it offers coverage for a specific period of time. Despite the limited coverage duration, term insurance plans typically provide a higher coverage amount for a lower premium cost.

Premium for life insurance vs term insurance

The premium for purchasing a policy early in life is relatively low. Some insurance companies offer coverage for partial or permanent disability that may affect your income during the policy term. One key distinction between term insurance and life insurance is the premium cost. Term insurance, which does not include a maturity benefit paid to the policyholder upon surviving the policy term, typically has a lower premium.

One advantage of a term life insurance plan is that the insurer guarantees a minimum sum payment regardless of whether a claim is made or the event covered by the plan occurs during the policy term. Term insurance plans are known for their affordability while still providing ample coverage.

Both term insurance and life insurance offer protection in the event of premature death, ensuring financial security for your family during the policy term. Life insurance is often seen as advantageous due to the inclusion of a survival benefit in many plans. This benefit provides a lump sum amount to policyholders who survive the policy term. It can be utilized as a retirement fund or as a financial safety net to assist in achieving long-term financial objectives.