Understanding the Differences Between Insurance and Investment?

Both insurance plans and investments are critical financial tools that help you accomplish your future goals with ease. However, both of these instruments differ widely in terms of what they have to offer. The main objective of insurance plans is to provide you and your family financial protection. On the other hand, investment plans bring you profits along with the principal amount you invest.

To help find out which one best aligns with your short-term and long-term goals, find out the difference between insurance and investment.

Insurance is a form of arrangement where you or your family members will receive guaranteed compensation against any form of loss. This compensation is offered in return for a monthly or lump sum premium that you have to pay to the insurance provider.

Furthermore, insurance policies come in a variety of forms based on their purpose, such as car insurance, property insurance, life insurance, etc.

An investment plan is a money-growing tool where you give a sum of money or other assets to a third party. In exchange, you will receive that investment amount along with added profits at some point in the future. However, the profits you receive may not be fixed or guaranteed. Based on the type and risk of the returns, investments there are primarily three types of investment options:

• Bonds
• Equity stocks
• Mutual funds

For instance, in a bond, you lend your money to a company or the Government and receive interest in return. As a result, it has a much lower risk, especially in sovereign bonds, where the risk is almost negligible.