Many of us believe that investment and insurance plans offer comparable financial benefits, while others fall prey to unscrupulous marketers offering insurance products with unrealistically high return expectations.
While the primary objective of insurance is to cover the financial risk (via monetary reimbursement) in the event of the untimely death of a wage-earner, the primary objective of an investment is to generate a return in excess of the risk-free rate and to outpace inflation in order to achieve a person's future goals.
To attract investors, investment products are frequently packaged with insurance products. Nevertheless, it is prudent to keep investments separate from insurance products. Always purchase term plans for life insurance and Mediclaim for health insurance.
The distinguishing factor:
The amount we pay for insurance consists primarily of three components: expense cost (which is very high compared to investment products such as mutual funds), mortality premium; and the remainder is invested according to your chosen investment strategy, which could be equity, debt, or hybrid. However, core investment products such as mutual funds have a much lower expense ratio than insurance products. So, after costs, the initial capital invested is more than insurance plans and may do better than insurance plans in the long run.
