Insurance Vs Investment - A Guide to Your Financial Goals

• 1st Jan 1970
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We always plan for our future as well as our loved ones. This future planning is not only restricted to choosing the best college, the best job, the most suitable house but also to financial planning. The financial goals you set to achieve the plans becomes an important part of your life. However, they vary from person to person.

It is important that your goals and plans go hand in hand to help you successfully accomplish the set objectives. What complements these goals are insurance and investment plans. Though both of these financial instruments can help you with your future goals, it is important to comprehend what each of these instruments offer and how they differ from each other.

In essence, insurance is a good option if you want to ensure that your family's financial future is safe even if you are no longer around and an investment plan can help you create more significant returns over 15-25 years. But there’s more to it!

Investment Plans: Pay Now For Better Returns Later

An investment plan is the sum of money or assets that you give to a third party in exchange for the return of that sum or assets, plus profit, at a later date. Bonds, where you lend money in exchange for interest, and stocks, where your share translates to being a part-owner of a corporation, are two examples of investments. While bonds are a relatively safe investment, stocks can produce a higher profit but at a higher risk with zero guarantees of returns. Another option is investing in Mutual Funds, where you can invest in a mix of stocks and bonds that are regarded mid-risk with mid-returns. You can also opt for a smart investment plan where you can invest in multiple places simultaneously, enabling you to achieve more than one goal at a time. For example, you can create an emergency fund and a contingency plan; this will allow you to be at a place where your savings are not affected in case of a medical emergency.

Insurance Plans: Planning for A Financially Stable Future

Insurance is a financial instrument that is purchased to protect you and your family against a monetary loss. This loss could be due to an untoward situation like accidents, illnesses, etc. There are different types of insurance like term plans, life insurance plans, health plans, etc. While term plans shield you and your family against any uncertain incident by offering them a sum assured, health plans offer financial support against medical expenses.

Having understood what these instruments offer, the discussion comes to what you should opt for. Insurance plans? Investment plans? Or both? The answer is straightforward and boils down to what you require today and in the future. Investments and insurance will look after you in the short or long run, depending on the kinds of plans you choose.

Insurance - be it term plan or health insurance and investment plan are both important aspects of financial planning for your future. Among the multiple options available today, you should create a plan most suited for your secure future and that of your loved ones.

- A Consumer Education Initiative series by Kotak Life