You might have come across this line “insurance is not an investment“, but still many investors often get stuck into insurance plus investment products majorly because of mis-selling.

Do you really know, why insurance is generally not recommended for saving and investing for goals?

Let’s first understand what Insurance is.

What is insurance?

Insurance is a protection for you and your loved ones against any unforeseen and unplanned events like accidents, illness, disability, and death.

Insurance policy is a contract in which a person receives financial protection or reimbursement against the losses from an insurance company. It’s like a hedge against the risk of any financial loss which may resulted due to any injury, accident etc.

Now, why insurance is not used for saving and investing for goals?

simple, because Insurance is not an investment. The main reason for repeating this sentence is –Insurance do not offer any kind of return/profit.

Therefore, no one saves, accumulates or grow money through insurance for the goals like retirement, child education etc.

Why people often mix investments with insurance?

Its most of the time due to the status of a tax-saving instrument which has provoked people to invest in insurance. I have often seen people comparing between ULIPs and mutual funds when it comes to taxes and returns. Also, the so called ‘Factual presentation’ of ULIP data with great returns is so much pushed by bank agents or insurance agents that in conclusion to their comparison, people often end up buying investment products which are insurance-based.

Agree…! both, insurance and investment, in a way or other, offer to secure your future financially and helps to soothe your tomorrow. Still, insurance and investment are entirely different from each other due to their objectives, structure, working etc.

Insurance and Investment Different?

Completely different…!

• The basic idea of investment is to make your money work for yourself. In investment, investors put their money in an instrument and expect returns like profit, dividend, interest or growth in value. In simple words, when one invests, he assumes their money to grow or to provide returns. The payment which goes towards investing, cannot be counted as an expense. But in insurance, the insured incurs an expense which is known as premium. It is a small amount spent (an expense) to protect and safeguard themselves or their families.

• In the process of investing, we often consider our risk capacity as an investor.  In investing, this ‘risk factor’ is measurable or say, investor can find out how much risk he can afford. Further, risk in investment(s) can get minimize by proper diversification and asset allocation. Correct?  On the other hand, insurance is basically a risk management tool. It means insurance can be used in order to transfer the risk or the financial implication of a possible loss.

It is always better to keep insurance and investments separate. Mixing both is an expensive option. Investing in an insurance product kills the purpose of the whole idea of insurance.

Thanks