People often get confused about which is better, insurance or investment? The answer is based on your present and future requirements. Investments will take care of your short- and long-term financial goals, whereas insurance will secure you and your family in the long run.
However, you may wonder where your insurance stands between a term insurance policy and a guaranteed return investment plan. Understanding the differences between protection and investment is not always simple. However, sensible financial planning and attaining peace of mind are essential. Read ahead and understand where your insurance fits.
What is an Investment?
An investment is a property or asset where money is invested to produce income or growth in value. It requires an initial outlay of time, effort, and money, with the promise of a better return in the future or generating profit.
Investments also come in numerous forms, such as stocks, mutual funds, properties, fixed deposits, and also insurance-backed items like guaranteed return investment schemes. The primary intent of investment is to build up wealth over the long term.
What are the Reasons for Making Investment Plans?
Investment plans enable you to increase wealth over a period. Here’s why you should opt for investment plans:
- Wealth Building: Investment schemes, such as a guaranteed return plan, allow your money to grow over the years.
- Goal-based Planning: Investing helps attain long-range goals such as purchasing a new home, planning retirement, or funding your children’s education.
- Inflation Protection: Investing is a way to ensure money keeps pace with inflation and retains its purchasing power over the long term.
- Diversification: Investment broadens the diversification of funds across multiple financial instruments, such as mutual funds, mortgages, fixed-income instruments, indices, and equities, thereby minimising risk and reducing returns.
What is Insurance Protection?
Insurance coverage is a financial shield that provides support at times of uncertainty or crisis. The most common type is term insurance, which ensures a reasonable sum to your family at an affordable premium in the event of your untimely death.
The policyholder pays an insurance premium to stay protected against prospective losses and keep the policy active. Coverage is determined based on the policyholder’s age, location, employer benefits, dependents, and other lifestyle considerations.
What are the Reasons to Avail of Insurance Protection Plans?
Creating a secure financial future involves a prudent blend of protection and growth. Mentioned below are the common reasons for availing an insurance coverage plan:
- Protection from Financial Losses: Insurance gives you access to funds to manage unexpected expenses caused by an accident, illness, or premature death, without affecting your savings.
- Peace of Mind: By obtaining an insurance plan, you will have peace of mind knowing that your family will be protected from financial loss in case of any unfortunate incident.
- Long-Term Support for Family: Life insurance can help with future education or living expenses for your loved ones so they won’t have to adapt or compromise their lifestyles.
- Legal Protection: Some insurances, such as motor vehicle insurance, are compulsory (legally required). Legal insurance provides you with the proper insurance required to comply with the legal frameworks.
What are the Differences Between Investment and Insurance Protection?
The table below distinguishes between life insurance and investment:
| Aspects | Investment | Insurance Protection |
| Meaning | It is meant to help you create long-term wealth for the future. | This tool serves as a safeguard for your family’s financial well-being in your absence. |
| Purpose | It allows you to reach your long-term financial goals, such as purchasing a home, financing your child’s education, or starting a business. | Provides financial security to your dependents, i.e., parents or children, thus easing the financial burden. |
| Returns | If invested properly, the returns are much higher than those from insurance products. | The returns are low, comprising the assured amount and some bonuses every now and then. |
| Risk Factor | Investment products have risk based on the kind of option chosen. | Life insurance policies are low-risk, and the beneficiary receives death benefits if all premiums are paid on time. |
| Common Types | Some common types of investment schemes are stocks, bonds, mutual funds, fixed deposits, real estate investments, and the Public Provident Fund (PPF). | Some common types of insurance plans include endowment insurance, term insurance, pension plans, whole life insurance, child life insurance plans, money-back plans, and unit-linked insurance (ULIPs). |
Where Does Insurance Fit in?
While investments make your money grow and address your current and near-future needs, insurance, particularly term insurance, safeguards your family’s future if you are not around. If you like a combination of security and return, a guaranteed return investment plan provides dual advantages with minimal risk.
Ultimately, your financial plan must balance employing term insurance for protection and selecting investments, such as guaranteed plans, to accumulate wealth. Match your decisions with your life stage, risk tolerance, and long-term objectives.
If you are still unable to decide between term insurance and investment as the better choice, the best idea is to know the balance between them.
Term insurance protects against life’s uncertainties, and a guaranteed return investment plan can secure sure-shot returns with a guarantee. Rather than mixing them, determine your objectives and use each for optimum use.
Founder Dinis Guarda
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