Insurance as an Investment Vehicle

Investment has many objectives. Some of these being capital preservation, fair return on investments, security cover, etc. Based on your risk appetite you might invest in various investment tools. Insurance is relatively risk free and hence serves very well if your objective is to avoid capital erosion while meeting your long term investment objectives. When it comes to choosing life insurance as an investment, you have probably heard the adage, “Buy term and invest the difference.” Let us consider the advantages of looking at insurance as an investment.
Regulatory Safeguards: In India there is a regulatory body that applies stringent regulatory conditions to safeguard policyholders and to provide and protect their interest in insurance related investments.
Flexibility: Insurance is one of the most flexible forms of investing your money in. You can begin your coverage with a modest insurance cover. And with time, as your cash-flow increases, you can increase your premium amount with the objective of providing a better life cover for your family as well as to build a larger corpus if the investment is in an endowment plan.
Tax Benefit: A lot of us in India see insurance as a tax saving instrument. Life Insurance premium paid up to 1.5 Lakhs is exempted under Sec 80 C of the Income Tax Act. This provides a great incentive for investors to set aside some capital for investing into life insurance and also avail protection cover for their families.
Borrow against the cash value: While investment in instruments such as mutual funds and equity do offer superior returns, you will not be able to utilize the amount invested in time of need except, of course, by liquidating the said investment. But this defeats the purpose of your investment and deprives you of the long term investment objective with which you set out in the first place. Unlike in the case of equity related investments, many life insurance plans allow you to borrow against the cash value accumulated. For instance, the insurance premium you have paid thus far has accumulated to a certain amount, you can borrow a percentage of that amount at a nominal rate of interest and with minimal or no paperwork. In other words, this provides you a source of liquidity without disturbing your investment objective and the bonus accrued over the years of premium paid. Further, this provides you the ability to borrow without having to secure your loan with a collateral.
Annuity: As an investor you might have long term investment objectives. One of which is to meet your retirement goals – this could include the wish to continue your current lifestyle post retirement as well. In order to meet this objective, you can convert your maturity benefit – which is your sum assured plus accrued bonus – into annuity. This way, you will retain your policy’s maturity amount while benefiting from the annuity by periodic inflow of income.
Customization: These days, insurance plans provide you the flexibility to build a corpus that meets your requirements. You have the flexibility to define time-periods during which you need payouts. This way, you can support your loved ones from time to time during crucial stages of their lives such as children’s education, marriage, etc.
Financial Discipline: If you are one of those that does not really have the financial discipline, knowledge or time to manage your finances yourself, insurance investments with premium payments that match your finances is a great option for you – you can choose from monthly, quarterly, half-yearly or yearly premium options.
Accelerated Benefits: There is hardly any investment instrument one can think of that offers benefits of investment continuity in cases of medical contingencies. However, with insurance plans you may be able to receive anywhere from 25 – 100% of your life cover’s death benefit if you develop a specified medical condition such as stroke, cancer, heart attack or renal failure. Further, your policy does not cease to exist and will continue up until maturity.
With the multitude of benefits that insurance offers coupled with the fact that this is perhaps the best tool to protect your capital from erosion with a fairly good return on investment, insurance is certainly one of the best investment vehicles around. A combination of term and endowment plans help you meet the twin objectives of protection and money-back. It is important that you compare life insurance plans before choosing the one that meets and matches your investment objectives.