Rakesh, a dynamic entrepreneur, worked day and night. The only goal of his life was to earn and invest money. He thought only suitable investments would help him save money in abundance. Rakesh had a family of five, and he wanted his kids to acquire higher education abroad. His ultimate goal was to start a family business with his kids. However, lifestyle and work pressure gave him little opportunity to follow a healthy routine. It shared with Rakesh a sense of worry despite his heart being filled with hope and passion. Willing to offer his family complete financial security and invest simultaneously, Rakesh thought of using life insurance as an investment.
Wondering why Rakesh chose life insurance as an investment strategy?
Let us read further to know that.
Table of Content
• What is life insurance?
• Is insurance actually an investment product?
• Why choose life insurance as an investment strategy?
• Can I consider insurance as an investment?
• Insurance as an investment, with example.
• The importance of investing in life insurance.
• Things to consider before investing money in life insurance.
• Conclusion
What is life insurance?
Life insurance is a product that provides life protection to the life insured in exchange for a premium. The policy has a ''life insured,'' a ''nominee'', and an ''insurer''.
According to the terms and conditions of the policy, buying protection against unexpected events can shake your family's financial condition. After the sudden demise of the policy members, the life insurance policy resolves the economic uncertainty in case of any eventuality.
Is insurance actually an investment product?
Insurance is a far distant product from that of investment. But, unfortunately, the innovation of hybrid insurance-cum-investment products often confuses people that life insurance is a pure investment product. Though it is not!
The very purpose of a life insurance policy is to arrange for financial security for the family in times of distress. After the policyholder's death, the life insurance policy compensates the family with the sum assured. But some life insurance products, endowment plans, money-back policies, ULIPs give them leverage. Individuals prefer buying such policies to seek double benefits.
Why choose life insurance as an investment strategy?
Life insurance policies are financial products that offer life protection cover and investment options under the same product. Apart from insurance protection, some life insurance products also provide savings options. Investing in a life insurance policy provides you:
• Life protection cover.
• Savings option to collect money for your future goals like child's higher education or child's marriage.
• An opportunity to generate a parallel stream of income.
• Chance to collect money and create wealth to beat inflation.
• Save money for your life after retirement when your active income stops.
Thinking about whether you can take an insurance policy just for investment purposes? Read further to explore more.
Can I consider insurance as an investment?
Yes, you can consider insurance as an investment option. But the prime purpose of buying life insurance is to seek life protection cover. Life insurance products allow you to invest money and earn returns.
Insurance as an investment, with example.
Let us understand how investment in insurance can help you.
Different life insurance products can be chosen for investment based on individual requirements. For example, if you think of Rakesh, he wanted to save and generate money out of investment for his family.
His only intent was to build financial protection for the dependents in the family. So, considering the safe insurance option with guaranteed returns, Rakesh bought a ULIP. Rakesh can pay an annual premium of Rs.50,000/-, the maximum life cover that he will get is Rs.5 lakhs. The amount is sufficient to fulfill dreams like buying a car or an unexpected family's need.
ULIP is a unit-linked insurance product that provides a dual benefit to the policyholder. First, the insurance policy gives life protection and the option to invest the money in different funds. The premium paid by the life insured is divided to make an investment in the capital market and provide life protection. Second, ULIP is a long period policy that helps you earn high returns after years of investment. It also pays the nominee sum assured if the life insured passes away during the policy tenure.
The importance of investing in life insurance.
A life insurance policy is a safeguard against the death of the policyholder. It also acts as an investment plan which helps you meet several life goals. Let us look in detail at the importance of investing in life insurance.
• Save more with life insurance: A life insurance policy allows you to save more and accumulate funds. Along with savings, it protects your family's savings when the time is odd. The policy pays the nominee death benefit as sum assured. The amount can be used to pay off the loan liabilities.
The collected money can help you to fulfill your future desires and goals. For example, with a ULIP or savings plan, you can pay an insurance premium and save money for the future.
• Help save taxes: The life insurance policy you invest in helps you reduce income tax liabilities. The premiums you pay are eligible for tax deductions under Section 80C, Section 80CCC, and Section 10(10D) of the Income Tax Act, 1961.
• Early investments keep you protected: When you start making early investments, you end up saving more in life. In the end, you have a huge corpus of funds. The amount collected can be used for your future goals.
• Save for retirement: Old age is the time when you deserve to relax with a lot of peace in mind. You can invest in an insurance savings plan to accumulate money for your old age. You can arrange for regular monthly income with the right life insurance plan.
Things to consider before investing money in life insurance.
These are the things you can consider before investing money in a life insurance policy:
• Age Criteria
The first thing to consider while purchasing a Life Insurance Policy is your present age. When you have enough money, you may arrange your finances for different life stages differently as you become older. Preparing for the future will assist you in achieving all of your goals.
• Policy Conditions
You should always review the policy conditions to ensure that you are not left helpless in an emergency. For example, check to see if your insurance covers critical illness, accidental disability, child support benefit, cashless hospitalization, and anything else you could require according to your age and health conditions.
• The Claim Settlement Ratio of the Company
The claim settlement ratio shows how many claims the company has settled compared to how many shares it has received. A company with a good balance is worth investing in and can be trusted. However, the market is highly controlled, with most corporations having a ratio of more than 80%.
• Services of the company
When buying a life insurance policy, you must check the quality of services offered by the insurance company. Read about the feedback that is submitted by the customers. If the company's service quality is high, you can be assured of resolving your issues at the time of need.
Conclusion
Choosing insurance as an investment option is for the wise. You take your bet in picking a suitable life insurance product. Make sure that investment in life insurance should not be a burden for you. The idea is to put the money in insurance products and put the worries aside. When you buy a life insurance policy, you are actually safeguarding your family from unexpected risks and ensuring great peace of mind.