Should you choose investments or insurance? Let us look at both these concepts more carefully, particularly if you desire guaranteed income and coverage benefits alike. You should know the differences between the concepts carefully when it comes to securing your income for the future while knowing about the long-term advantages of each.
Knowing More About Insurance
Insurance is a specific form of financial coverage/protection for people and families when they have to deal with many kinds of losses. This includes the possible demise of a close one or breadwinner, along with property damage, health/medical ailments, and so on. Thus, insurance works as a major safety net, enabling higher mental peace and financial coverage for the family in difficult times. Life insurance is the most popular form of the product, offering a fixed payout whenever the person insured passes away in the policy period (in the case of term life insurance). However, other types of life insurance, such as whole life and endowment plans, also provide maturity benefits if the policyholder survives the term. This helps the family meet its costs and needs without depending on anyone, particularly when the primary earner passes away. Other options include car insurance, home insurance, health insurance (which offers financial coverage for treatments), etc.
What Do Investments Entail?
Investments are essentially about putting in money either as a lump sum or at regular intervals to build up a portfolio or accumulate wealth over a period of time with potential profits. There are several types of investments available, with varying levels of risk. Stocks and mutual funds have high to mid-level risks, while bonds are comparatively safer. Gold and real estate also fall in the category of investments. You have to plan your investment carefully, choosing the tenure and amount that you can afford while also managing risks or reviewing your portfolio to achieve your future goals.
Mixing the Two
There are several options available that combine both insurance and investments into a viable package for your portfolio. For example, if you want guaranteed income, then you can choose a guaranteed return plan, which provides fixed and predictable returns with life insurance coverage. This offers the benefit of stable and non-volatile returns, while life coverage is offered throughout the policy duration to protect your family in case something happens to you during this period. However, while these plans offer assured returns, they may not always outpace inflation.
Another option is a ULIP (unit-linked insurance plan), which lets you invest in multiple funds, depending on your preferred level of risk for earning future returns, and it gives you life coverage. However, ULIPs are market-linked and do not provide guaranteed returns. Then, there are endowment plans and other types that combine both investments and insurance.
At the same time, you can customise many of these policies by adding various riders to cover multiple scenarios/incidents in life. These include many health-related riders like accidental death/disability, terminal illnesses, critical illnesses, etc. It is important to note that riders enhance coverage but do not contribute to investment returns. Hence, in a single policy, you can naturally combine all these aspects into a single plan.
Which Plan Should You Opt For?
It all boils down to your personal preferences. As mentioned, if you’re inclined towards risk-free investments, then choose guaranteed return plans. If you can take a little more risk, opt for ULIPs, while there is term insurance, which offers pure life coverage (except for return-of-premium term plans, which refund the premiums paid if the policyholder survives the term). You can choose the latter if you want dedicated life coverage while investing in other options like ULIPs, mutual funds, bonds, etc. So, mixing the two types is the solution instead of pitting one against the other.
