Is insurance an investment?

Why do you buy insurance?  

This is a question I have often asked my clients when I meet them for the first time. 

Several years of experience behind me, I know the answers they give even before they open their mouth. 

Answers are stereotyped, irrespective of the type of client-Resident Indians or Non Resident Indians, rich or poor, salaried or business man. 

Somebody bought it because a friend is an insurance agent, someone else wanted to help a family, therefore bought an insurance policy from an agent from that family. 

There are people who buy it because the product is good. There are those who have invested in an insurance policy!!!!  They think insurance is the best investment!!!! 

I have seen house wives complaining that the husband has not taken an insurance policy on their life- why? They want to feel the proud ownership of the policy!!! I ask them what if your husband dies? Forget receiving compensation for his death, she will be asked to pay for the policy or else it will get lapsed or gets paid up. 

Then there are those affectionate parents taking insurance on the life of their child!!! Why? They don't know!!! What if something were to happen to them? Child will be asked to pay for the policy or again policy lapses or gets paid up. 

How many have bought insurance because they wanted protection of an insurance policy? Very rarely you will find one. 

Why this situation? Because, hardly any one feels the need for one till a grave situation develops in their life. Unfortunately you cannot buy insurance when you urgently need one. You have to buy it when you don't need it. 

Insurance is a serious business. Buy insurance if you need one. Not because of above mentioned reasons. 

Ask yourself this question - what if I don't get up tomorrow morning? What will be the economic consequences on the whole family? How much protection does your family need? Buy insurance for an adequate level of protection. 

This is the reason for which you need to be buying insurance, not for all the wrong reasons. 

You don't buy a washing machine, TV or furniture or anything to help anyone!!!  

Why should you buy insurance to help someone? Buy insurance only if you feel there is a need for it. 

God Forbid, what happens if you don't return back from your work permanently?

 

My job as a financial planner involves asking a lot of questions with prospects. Finding facts about the life of an individual is the first step of financial planning exercise. It is not an easy task to evince required information. 

One of the questions I ask often is - What are your investments as of date? 

I am not surprised if the person on the other side replies that he has invested in many of the insurance policies. He has lots of documents to show that he has bought hell of a lot of insurance. I know what he means - he is paying a lot of money for insurance. 

Let's think for a while. Can someone really invest in an insurance policy? Is your insurance an investment? 

The answers to these questions are very important from the point of view of planning your finances. The insurance in its true meaning is sharing of risk and not investments at all.

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