Insurance and Investment: How Are They Different?
Personal Finance may sound very simple but in reality it is not the case. As many of you will admit that taking an Investment or an Insurance related decision is always very difficult. One should take decision based on his/her future capital requirements and security coverage needs. Individuals should not succumb to the schemes promoted or marketed by the Insurance/Investment Advisors who in their bid to sell their respective financial product may manipulate facts.
Individuals should be very careful while taking a financial decision and have a close look at the features, benefits, riders before putting in their hard earned money.
Investment and Insurance are two terms which is often interchangeably used, but in reality they are not similar and denote two vital components of Personal Finance, which are different from each other.
- Provide insurance cover (lumpsum benefits) to the dependents in case of any eventuality.
- It mitigates the financial risk arising due to any unfortunate event in the future.
- Provide Tax Benefits as Premiums paid towards insurance cover are eligible for Tax Deductions. (IRDAI Regulated)
- Ensure that maximization of Wealth is achieved over a period of time.
- Provide alternative source of Income in the long run.
- Investment are also undertaken with the objective to minimize the Tax Liability (Tax Saving Schemes)
- Capital Appreciation to meet your future requirements, obligations and fulfillment of goals.
How Investments and Insurance Differ?
- Investments involve evaluation of risk involved and Return on Investment (ROI). Whereas, Insurance is mitigation of risk in case of any eventuality.
- Investment is only interested in appreciation of capital, thereby leading to maximization of wealth. Whereas, Insurance provide financial cover to the dependent/insured in case of any untoward event.
- Investment ensures growth, while Insurance ensures security.
Investment and Insurance should be treated as separate entities. Individuals need to plan out their future Capital and Security needs before opting for any Investment or Insurance plan.
You may find some hybrid Insurance cum Investment plan, but they are mostly expensive and return on investment is also quite meager when compared with pure Investment plans.