5 reasons why people invest in insurance

Don’t mix insurance and investments – most financial advisers, who don’t have any conflict of interest will suggest that.  You end up doing injustice to insurance as well as investments in that case! Yet insurance continues to be a popular investment. What are the reasons why people “invest” in insurance products?

Before that, it is also important that one understands the purpose of taking insurance, and why you shouldn’t mix it with investment. Both (insurance and investments) are important – just that bundling them in same product helps agents and insurance provider more than the customer!

Insurance is a risk management tool which helps manage financial risk to family in case of policyholder’s death. On the other hand, investment can help your money potentially grow and help you meet your financial goals!

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reasons why people invest in insurance

Here are few reasons why people invest in insurance products!

  1. A friendly neighborhood uncle or adviser or bank relationship manager (RM) suggested a “great” endowment plan/ ULIP/ money back plan!
  2. Assurance of great returns. Most of the time, this is thought in terms of absolute amounts rather than returns on investment.  (e.g. invest  Rs. 10,000 per month for 10 years, and get get Rs. 100,000 every year after that, and so on! But while getting wowed by this calculation, we tend to forget that a simple bank FD may often provide better returns!))
  3. They genuinely think it is a good investment. (Maybe, they haven’t read much about other alternatives. OR maybe, the sales pitch was too good!)
  4. The plan provided an add on life cover too! (That this life cover is usually too little, is a different story)
  5.  Save taxes – “I need to save taxes. So let me invest in a insurance product which uncle/ adviser/ RM has suggested!” (There are better ways to save taxes – some of which are explained here!)

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Doing basic math can tell that there are better ways to invest. A simple way can be buying life insurance (term plan ) and investments (whatever suits you  – debt/ equity mutual funds. bank depots etc!)

Some basic reading and understanding of how different financial products work can help.  So can taking help from an unbiased financial adviser!

 

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