Financial planning guide – investment or insurance which one you should opt for?
Financial planning is not only about savings and tax benefits; instead, it refers to planning your funds carefully and in a proper way. Usually, people make investments randomly based on tax-saving tips which is a wrong approach and a significant problem. But having a financial plan is inevitable, and it is essential to start financial planning early by defining short- and long-term goals followed by wisely choosing the investment products. The entire process comprises planning for emergency funds, creating a varied investment portfolio and investing in insurance policies.
But it can be really confusing and complicated if you are doing it for the first time. And often it is seen that people get confused about deciding whether to put their money into insurance or investments, while doing their financial planning. The confusion of choosing between investment or insurance persist because people consider life insurance policies as an investment product. And thus, opt for such policies which have savings investment component without realising that they are usually expensive than the traditional life insurance policies which are a pure protection plan.
Experts suggest that before starting with financial planning and begin investing, it is essential to secure your earnings and identifying your life goals. It is highly recommended to include insurance in your financial plan as it is a crucial element which protects your savings from getting drained during an unfortunate circumstance. For example, in an unprecedented situation like medical emergency or accident, the insurance policy takes care of the expenses such that your accumulated funds and your current income does not get strained. In simple words, an insurance policy is a back-up plan to protect you from the rising health care or loss of income due to the untimely demise of the sole-earner of the family.
Life insurance is a protection plan that secures your family financially in an unforeseen scenario. In case of your demise, the nominee of the policy receives the insurance coverage amount or the death benefit amount. And if you survive, then specific policies like traditional term plans do not offer you any maturity benefit, but now some of the life insurance policies provide the maturity benefit. In such case, people tend to expect how much return an insurance product can offer them rather than focussing on how much coverage it provides and at what price. The majority of people think that investing is such a policy that does not return anything is a waste of money. Still, they don’t realise that they are losing the opportunity to save money while securing their loved ones in their absence. They also don’t understand that life insurance is a long-term product, and the decision they take today will benefit them in the long run.
There are different kinds of insurance policies available in the market for various situations like critical illnesses, disability, accidents, or death, and you should select a policy based on your needs and requirements. But looking at the present condition, both health and life insurance policies are a necessity. Health insurance can take care of substantial medical expense, whereas life insurance can secure the policyholder’s family financially in case of his or her untimely demise.
Experts advise not to consider life insurance policies as an investment product, if you want to earn return then include mutual funds, equities, or other option in your financial planning. It is also advised never to mix up insurance and investment as it can adversely impact your financial portfolio. Because mixing the two can result in lower returns as the invested amount could have earned higher returns if invested in proper investment avenues. And similarly, you might get inadequate life insurance coverage if you mix insurance with investment as life insurance is not an investment product.
If you are also confused about whether to opt between investment or insurance while preparing your financial plan, then you need to know about the primary difference and usage of both. To learn further, you can visit BimaKaro.in and read through their various blog to get clear understandings. You can also speak to their insurance experts and opt for a term insurance policy which is the simplest and cheapest form of life insurance policy as per your requirements.