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Bridge in the gap of Investment and Insurance

While insurance provides protection against financial losses, investment can help an individual to grow their wealth. Both investment and insurance serve different purpose, both are essential components in robust financial planning. Investments are required to generate profit, build a corpus and boost finances. Likewise, insurance helps to provide monetary protection for one’s family in his/her absence.

Investment-linked Insurance Policies are the policies that have life insurance coverage and investment components. Your premiums are used to pay for units in one or more sub-funds of your choice. Some of the units purchased are then sold to pay for insurance and other charges, while the rest remain invested. Investment-linked insurance is a type of insurance policy that offers both insurance coverage and investment opportunities. It is a hybrid product that combines the benefits of insurance with potential returns of investment. In an investment-linked insurance policy, a portion of the premium is used to provide insurance coverage while the rest is invested in a range of investment options such as stocks, bonds and mutual funds.

Insurance is not an investment, as it is not designed to generate returns or grow an individual’s wealth. Insurance and investment move towards distinct purposes as insurance is designed to protect an individual against financial losses, while investment is intended to grow an individual’s wealth. Although certain type of insurance such as Investment-linked insurance may offer investment opportunities in addition to insurance coverage – insurance is thus, not considered as an investment in general. Insurance is an essential impact of financial planning as it provides protection against unforeseen events that can cause significant financial damage. Investment, on the other hand involves in taking a certain level of risk with expectation of generating returns – each investment option carries a certain level of risk and the potential returns depend on the performance of the investment.

A comprehensive financial planning should include both insurance and investment to ensure adequate protection against unforeseen events as well as the potential for long term growth.