Insurance is a tricky subject. There are so many different options to choose from and it can be hard to know which one is best for you. This guide will take you through the basics of life insurance and investment, the differences between them, and how they can work together to create a more secure future. The first thing you need to know about investment and life insurance is that they are not the same thing. Life insurance protects your family in case something happens to you, whereas an investment policy protects your money as it grows over time.
Investment insurance is for those who have accumulated wealth, such as in stocks or mutual funds. They are looking to protect their assets from any outside forces that could diminish them. Life insurance is for those who have dependents that rely on them financially. The difference between investment and life insurance is not always clear. This article will help you get a better understanding of what the two are, how they work, and when you should use one over the other.
What is a Life Insurance?
Life insurance is a contract between an insured person and an insurance company. The insured person pays a certain amount of money to the company in exchange for the insurance company agreeing to pay a guaranteed sum of money if the insured person dies during the term of the policy. The death benefit is typically paid to the beneficiary who was designated by the deceased. In some cases, it may be paid in installments over time. Life insurance is considered one of the best financial planning tools available in the market as it covers both the investment and insurance parts under a single policy. Life insurance policies are designed to protect the life of individuals and therefore provide financial security to the deceased family. Some of the main benefits of life insurance plans are
- A life insurance policy helps to minimize the risk of financial difficulties which would be faced by the families in case of the sudden death of the policyholder.
- Some life insurance plans offer you the opportunity to create wealth.
- Life insurance offers tax dual benefits under prevailing laws as per the Income Tax Act of 1961.
- The premium paid by the customer is depending on age, life expectancy, health, and gender. Life insurance premium rates are affordable and reasonable.
- Some of the Life insurance policies provide us with the option of a Loan against the life insurance policy.
Types of Life Insurance
- Term Life Insurance: It is a time-limited insurance policy that lasts for a specific period.
- Whole Life Insurance: t is an insurance policy with no time limit, but it pays off only after you die or when the policy matures, whichever comes first.
- Unit Linked Life Insurance: Unit Linked Life Insurance is a type of life insurance that is linked to a unit of investment.
- Endowment Life Insurance: It is a long-term life insurance policy that provides the beneficiary with a fixed rate of return.
- Money Back Life Insurance: It returns the money invested by the policyholder. In this, the percentage of amounts at regular intervals, instead of getting the lump sum amount at the end of the term.
- Child Life Insurance: Child Life Insurance policy is a type of insurance policy that covers children up to a certain age.
- Retirement Life Insurance: This covers the cost of living expenses when you retire. It's meant for those who are retired and have a fixed income.
What is an Investment?
An investment is the purchase of an asset. It can be in the form of a tangible or intangible object, such as a stock, bond, property, or another financial instrument. Investments are typically used to generate income and profits by providing capital to businesses. Investment plans are a type of financial product that exists to help us create sustainable wealth for the future. You can put your money in an investment plan, which will give you different types of assets to invest in within a regular and disciplined pattern. Investment plans are an advantage for maximizing our savings through short-term, and long-term investments and creating wealth for the future. Some of the main benefits of Investment plans are
- Saving tax benefits
- Funds for emergencies and peace
- Grow your wealth without any uncertainties
- Strengthen your post-retirement entity
- Flexible premiums with higher returns
- Long-term financial security for individuals and families.
Types of Investment Plans
The types of investment plans differ depending on the amount of risk and return that an investor is looking for. There are mainly three types of investment plans:-
- Low-risk Investment
- High-risk Investment
- Medium-risk Investment
Low-risk Investment
Low-risk investments are those where the risk is really low. They tend to provide stable and reliable, but not too great, growth of capital. They can also suffer minimal losses.
- Endowment Plans
- Money Back Plans
- Public Provident Funds
- Fixed Deposits
- Mutual Funds
- Bonds
- National Pension Scheme
- Tax Saving Mutual Funds
- Sukanya Samriddhi Yojana (SSY)
- Post Office Monthly Income Schemes
- Senior Citizen Savings Scheme
Medium-risk Investment
Moderate to medium-risk investments usually refer to a balanced investment strategy. For example, that may include holding stocks, bonds, and cash all at once. A medium-risk portfolio is a balanced mix of equity and debt instruments to generate an overall higher return while still providing some stability.
- Monthly Income Plans
- Arbitrage Funds
- Hybrid debt-oriented funds
High-Risk Investment
High-risk investment plans are suitable for investors whose primary focus is on having high long-term capital growth.
- Unit Linked Insurance Plans
- Mutual funds
- Direct Equities
Difference between Investment Plans vs Life Insurance
|
Investment Plans |
Life Insurance |
| Definition |
Investment plans are a type of financial product that exists to help us create sustainable wealth for the future. |
Life insurance is a contract between the policyholder and an insurer. The insurer agrees to pay a sum of money upon the death of the insured person, in exchange for a premium paid by or on behalf of the policyholder. |
| Risk Component |
Investment products carry some amount of market risk. |
There is no risk involved with traditional life insurance schemes. Your nominee will get the sum assured before the policy expires if you make all the required payments on time. |
| Reason to Buy |
The main reason to buy investment plans is fixed returns over the long term. |
The primary reason to buy a life insurance plan is to provide basic security for your loved ones when you no longer can. |
| Types of Plans |
- Unit Linked Investment Plans
- Endowment Plans
- Money Back Plans
- Public Provident Funds
- Fixed Deposits
- Mutual Funds
- National Pension Scheme
- National Savings Certificate
- Bonds
- Tax Saving Mutual Funds
|
- Term Insurance
- Whole Life Insurance
- Endowment Insurance
- Unit Linked Insurance
- Money Back Plans
- Child Life Insurance Plans
- Pension Plans
|
| Returns |
General investing opportunities have higher returns on investment than life insurance products. One downside is the risk of investing in stocks and bonds, which tends to coincide with larger levels of rewards. |
Returns from a life insurance plan include the death benefit, maturity benefit, and bonuses accrued over time. This is usually decided at the time of purchase, in the case of a unit-linked plan this amount could increase as well. |
Conclusion
The decision of whether to invest or buy life insurance is a difficult one. This is because many factors need to be taken into consideration before making a decision. Investments are usually used for retirement and other long-term goals, while life insurance helps protect your family in the event of your death or disability. If you have dependents and want to provide financial security for them, then life insurance may be the better option.
PolicyBachat is an online insurance web aggregator which will help take away the hassle of comparing insurance providers. The most effective way to find the best plan is to look at quotes comparison. This tool makes it easier to buy the appropriate life insurance policy online. You can easily compare and contrast different plans, choose the best one for your needs, and save money & time in the process.