Life insurance is a risk management strategy where an investor sets an amount to be used in case of emergency or some unexpected loss. It is a way of saving money to avoid risk by doing investments in other financial instruments than that of insurance products. Be itself insurance or an insurance both are two different types of saving in an entirely different way. The saving journey of self-insurance comes up with two critical issues. First investment corpus takes years to convert saving into the big amount and the second premium for getting protection with a term policy cost comes in a fraction of investments whereas to grow corpus into the same size it will take years of duration.
Let’s discuss why buying life insurance is a better decision than self-insurance for growing same corpus amount by investing in other financial assets.
Self-insurance gives your freedom to choose multiple ways of investing money in financial assets but life insurance give you real protection from all uncertainties. Life insurance gives protection to you and to your family from day one with lakh of rupee which is your sum assured. And this is not possible in self-insurance as it takes years to grow the same corpus of lakh of rupees, which is a long journey
The profit of invested money in mutual funds or stock is based on the market and is not guaranteed. However, in the case of life insurance, various plans gives you guaranteed return on your invested amount to maturity along with death benefit cover. This is a major highlight of life insurance.
Tax is applicable on return one get by making investments in financial assets. Life insurance return is exempted from tax under various sections like 80C and 10(10D) etc. And this could be the major reason why the majority of people prefer to invest in life insurance as this saves and grow their money with a death benefit.
Life insurance gives an advantage of borrowing cash anytime. However financial instruments are defined for a certain time period so it won’t give freedom to access cash anytime.
Life insurance gives benefits above all that are death benefit. It gives you surety of sum assured to your family after your death. And condition remains the same even if you have not paid an entire premium amount, your family will get the cover amount. However, no financial asset comes up with any such benefit or cover.