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  Insurance as Investment

Home / Insurance as Investment

Insurance as Investment

Agreed, insurance may not be the best place to invest your hard-earned money. But there are sufficient reasons for one to believe that it can be a highly lucrative avenue to facilitate savings. People often talk about yield on investment and tend to compare their values with those available on various insurance schemes. This is particularly typical within the Indian sub-continent where one conveniently forgets the element of risk covered by life insurance.

It is extremely unfair to compare the performance of insurance against other investments without considering the core features of insurance. The very essence of insurance is to protect your family from the uncertainty of your life. Hence it proves very logical to evaluate the costs involved towards this feature. Ask yourself this question

When you pay insurance premium for your car, do you get anything if fortunately no mishap happens? This means that you spent the amount to secure a valuable property.

Hence you must accept that out of the total amount paid by you for your life insurance, a certain amount is used for providing the risk cover and only the balance can be utilised as savings.

In other words, the total premium you pay minus the amount evaluated as the cost of insurance must be considered as the amount invested to get the maturity amount. If you calculate the yield from returns, you will be in for a surprise.

Secondly, we tend to think very unrealistically about our life. We often compare the results after say 10 years from an investment scheme, for instance PPF. And then we try to convince ourselves that PPF is providing a better yield than an insurance policy.

For instance, if you invest Rs.10,000/- in PPF after 1 year your money will grow to Rs.11100/- accruing a return of 11 percent. But what if your death occurs in the first year itself? The Rs.10,000/- can give you an insurance cover up to an approximate sum of Rs.12 lakhs (depending upon the plan, age, etc) and this amount shall become available to the nominee of the policyholder as against the mere paltry Rs.11,100/- that PPF shall pay.

Now how do you compare the yield in such a situation? Is it 100 % or 1000 % or more?

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