Insurance plans that give a return on maturity are popular among most people seeking insurance. People often combine the two financial goals to reap the dual benefits of insurance and investment. However, both serve different purposes.
While insurance is meant for protection, investment is made to build wealth. Life insurance provides financial security for your dependents when you are no longer with them, and investments help create wealth to meet your financial goals. Both insurance and investment are essential, and whether or not you should combine the two depends on your goals and age.
Insurance is a way of protecting your investments and earnings, both present and future, in your absence. It provides a financial cushion in any adverse situation like death, injury, or disability, helping your family live the life they had when you were around. There are certain types of life insurance plans that provide return after retirement or a certain fixed period, like endowment plans, ULIPs, pension plans, etc. Such insurance plans divide the premium you pay into two components: life cover and investment.
If you buy insurance with an investment option at an early age, you may earn considerable returns over the long run. However, the life cover you get is lesser than pure insurance plans, which offer much higher life coverage at a lower premium. Often insurance plans with investment options focus more on investment, and the life cover you get is insufficient, defeating the only purpose of insurance. Remember that life insurance is not a choice but a necessity, and you should have enough coverage after considering the cost of living in the future.
Investments help you create wealth for your financial goals over the long run. There are various investment options you can choose from, such as stocks, mutual funds, bonds, real estate, etc. The objective of investments is to earn some returns on your invested money. You can choose any investment option depending on your risk appetite, the tenure you want to stay invested, and the returns you will get. Investments help you create a corpus to meet financial goals and act as a contingency fund to take care of any financial need if there is an emergency.
Compared to the insurance plans with investment options, any of the investment options mentioned above can give you higher returns. When you combine investment with insurance, you get both life cover and investment returns, and the investment charges become higher.
The answer to this question depends on many factors, such as your financial goals, your age, and also your financial knowledge. Both insurance and investment are crucial parts of financial planning. If you are a young investor without much knowledge or experience in financial planning, you can consider insurance with an investment option. However, it is always recommended that one never mix insurance with investment. Keeping the two separate will save you money and give you maximum benefits.
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