Quick Overview

Investing in a term insurance plan is completely different from investing in a Systematic Investment Plan (SIP). When you invest in a term plan, you leave behind a sum assured for your loved ones/nominees if something unfortunate happens to you during the policy period. 

Alternatively, an SIP is a simple method in which you invest in financial instruments like mutual funds, allowing you to align your investments with your financial goals and risk tolerance. Put simply, a term plan is a protection tool, while a SIP is a wealth-generation tool.

Confused between a term plan and SIP? You’re not alone. SIPs help your money grow, but they only work if your income continues. A term plan fills this gap by protecting your family and goals. This guide explains why the combination of a term plan and SIP matters.

Unsure which term plan aligns with your SIP goals? Book a free call with Ditto, and our advisors can help you out.

Can You Invest in a Term Insurance Plan through SIP?

You cannot invest in term insurance the same way as an SIP in a mutual fund.

A SIP is an investment route where a fixed amount is invested in a mutual fund at regular intervals. At the same time, a term insurance plan works differently. You pay a premium, and if you pass away during the policy term, your family receives the death benefit. 

So when people say “SIP with term insurance plan,” what they usually mean is running both side by side, not combining them into one product.

Note: Return-of-premium term plans may look like SIPs, but they cost more and compromise pure protection. SIP investors should keep insurance and investments separate and let each do what it does best.

What is the Difference Between SIP and a Term Plan?

AspectSIPTerm Plan
PurposeWealth creation over the long termFinancial protection for the family
NatureMarket-linked investment Non-market-linked pure protection plan
What you payFixed amount invested regularly, usually monthlyPremiums as per the premium paying term
ReturnsDepends on market performance Lump sum benefit on death
Liquidity Can withdraw or redeem anytimeNo liquidity or surrender value (unless ROP variant)
Time horizonShort or long depends on individual needsLong term, usually till age 60 to 70
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Why Should You Consider a Term Plan besides SIP?

Goals Can Collapse Suddenly

Without a term protection plan, long-term goals like a home, education, or retirement can be delayed or dropped. Families may be forced to sell investments or take loans.

Term Insurance Brings Stability

A term insurance payout provides instant money. It replaces lost income and supports daily expenses and goals.

Affordable Coverage

Term life insurance offers high coverage at a comparatively low premium.

Tax Benefits

When you purchase a term policy, you receive tax benefits on the premiums paid, and payouts to beneficiaries are also tax-free.

How Does a Term Plan Work with a SIP?

Think of SIP and term insurance as a single system. One builds wealth while the other protects the person building it.

Example:

A 25-year-old starts a ₹10,000 monthly SIP in a mutual fund for long-term goals like child education and retirement. Over 35 years, the total amount invested of ₹42 lakh can grow into a multi-crore corpus, assuming steady returns:

    • ₹2.29 crore, with an 8% rate of return
    • ₹3.80 crore, with a 10% rate of return
    • ₹6.43 crore, with a 12% rate of return

Alongside this, the person buys HDFC Life Click 2 Protect Supreme with a ₹2 crore cover at a monthly premium of about ₹1,692(actual premium varies by health status, lifestyle, etc.). If something happens to the policyholder, the family gets immediate funds to repay loans, continue SIPs, and protect financial goals.

Key Insights

SIPs begin small and gradually expand over time. In the early years, the corpus is far from the final goal. For example, at around 10% returns, a SIP may reach only about ₹7.7 lakh after 5 years. If something happens to the investor during this phase, the family may face a shortfall. 

A term plan fills this gap by providing instant liquidity to repay loans, meet expenses, and maintain long-term goals.

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Key Considerations for SIP Investors Choosing Term Insurance

01

Choose the Right Payout Structure

You can opt for a lump sum, a monthly payout, or a mix. Monthly payouts suit regular expenses and income replacement. Lump sums work better for closing loans or planned investing.

02

View Premium as Stability Cost

Like an expense ratio in SIPs, term premiums are a small, predictable cost. They remove the biggest threat to your financial plan, which is income loss.

03

Pick Monthly or Annual Payment Wisely

Monthly premiums aid cash flow but cost slightly more. Annual payments are cheaper and simpler, with fewer chances of missed payments.

04

Review Cover Periodically

Revisit your term cover after marriage, children, loans, or income jumps. A simple annual review is enough.

Note: You can easily estimate your ideal term cover using the online cover calculator. It factors in your age, expenses, and liabilities to suggest the right protection for your family.

Why Choose Ditto for Term Insurance?

At Ditto, we’ve assisted over 8,00,000 customers with choosing the right insurance policy. Here’s why customers like Vijay below love us:

Best 2 Crore Term Insurance Plan in India
SIP With Term Insurance Plan
    • No-Spam & No Salesmen
    • Rated 4.9/5 on Google Reviews by 15,000+ happy customers
    • Backed by Zerodha
    • Dedicated Claim Support Team
    • 100% Free Consultation

You can book a FREE consultation. Slots are running out, so make sure you book a call now!

Ditto’s Take on SIP with a Term Plan

Think of it this way: SIP builds the destination, while the term plan protects the journey. As income grows, you can increase your SIP amount to build a bigger corpus. The term plan premium, however, stays fixed for the entire policy term. This is why choosing the correct term plan matters just as much as picking the right SIP.

If you are looking for a term plan from insurers with monthly-premium payment options, we recommend comprehensive plans, which align with your long-term goals. Explore more about how our experts evaluate term plans through Ditto’s cut.

Frequently Asked Questions

Can a SIP replace term insurance?

No. A SIP builds wealth over time, while term insurance provides immediate financial protection. One cannot substitute the other.

Should I start a SIP or buy term insurance first?

Ideally, buy term insurance first to protect your income, then start SIPs for long-term goals.

Is it okay to run SIPs without term insurance?

It is risky. If income stops unexpectedly, SIPs usually stop too, which can derail long-term goals.

Can term insurance premiums be paid monthly like SIPs?

Yes. Most insurers allow monthly premium payments through auto-debit, similar to SIPs.

Does combining SIP and term insurance increase overall costs?

Not significantly. Term insurance is low-cost and it often creates a balanced plan of growth and protection.

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