Understanding the Differences Between Insurance and Investment?

What Is Insurance?

What Is an Investment?

What Are the Differences Between Life Insurance And Investment?

To understand which financial tool is better, you must understand the main points of insurance vs investment.

Check out the difference between investment and one of the essential and long-term committed insurance, life insurance plans:

Points of Comparison

Life Insurance Plans

Investment plans

Description

It is an agreement between policy providers and buyers where they will offer financial compensation as life coverage against an unfortunate event of the policyholder’s demise.

These are financial tools where you invest or lend money to a third party for a long or short period of time to receive the investment amount along with added profits.

Reason to Buy

To get financial security in crisis situations, reduce expense burden, or provide basic security to your family during your absence.

To increase your wealth and build a substantial corpus to meet future goals and wishes by having an additional source of earning.

Risk Component

Negligible risks

Risks are much higher

Types

Whole Life Insurance, Term Insurance, Endowment Insurance, Unit Linked Insurance, Money Back Plans, Child Life Insurance Plans, Pension Plans

Stocks, Mutual Funds, Bonds, Certificate of Deposit, Real Estate Investments, Fixed Deposits, Unit Linked Insurance Plan (ULIP), Public Provident Fund (PPF), etc.

Returns

The returns are relatively low and include the sum assured along with occasional bonuses.

returns are much higher than in insurance products if invested wisely.

From the difference between insurance and investment, it can be said that both insurance and investment plans are essential and effective instruments that help you fulfil financial goals or simply ensure monetary security for a rainy day. Therefore, there is no correct answer to which one is better.

While insurance products are highly essential to avoid expense burdens and secure finances for you and your family, investments could be necessary to build and increase wealth, have a second source of income or keep up in the inflationary environment.

FAQs About Insurance and Investment:

Can I get the dual benefits of insurance and an investment plan from a single purchase? up-arrow

Yes. In a ULIP, your insurer will provide your nominees the sum assured as a death benefit if an unfortunate event occurs. Otherwise, you get back the investment returns on stocks or government bonds or debt mutual funds as per your choice. The profit returns from these investments can also be withdrawn after a lock-in period of 5 years.

Is insurance an asset or investment? up-arrow

Based on the type of insurance you purchase, it can work both as an asset and an investment. For instance, in whole-life insurance, the premiums you pay are accumulated and build value over time, creating an asset for future goals and needs. On the other hand, plans such as ULIPs can be a compelling investment as they offer high returns from market profits along with the sum assured.

Which is better between insurance and investment? up-arrow

This depends on your needs. If your plan is to boost your finances for the near future, then investments are a better option. Conversely, if you are looking for monetary protection for yourself and your family in the long run, then insurance is the right option.