Is life insurance an investment?
[social_share]Life insurance is often described as an investment, and this can be confusing for many people. Here’s a look at whether life insurance is in fact an investment or just an insurance policy.
In fact life insurance does have a lot in common with investments. Life insurance providers do tend to invest a large percentage of their proceeds in either the equity, currency, or bond markets, as policy holders generally purchase the product far sooner than they will expect a payout. This means that life insurance companies are often reliant on stock market performance for their profit margins.
Life insurance also, like many investors, has brokers, who are trained to look around the market for the best deal. They tend to be financially literate. Actuaries are also important in life insurance just as they are for pensions, as actuaries will give advice to the life insurance companies as to which applicants are a good insurance risk and which are likely to involve a claim.
There also used to be a product known as full life cover which was far closer to an investment product, which actually had a pay-out if the person lived to a certain point.
The best way for a policy holder to look at life insurance is not as an investment but as a financial product, albeit a very important financial product. Unlike investments, a life insurance product cannot be simply enjoyed by its owner, and there is no certainty whether the insurance will be claimed or not – in this way it’s an all or nothing item. Life insurance is there to provide peace of mind to a person who is used to providing for their family.
The policy holder should look to see what the payout is with life insurance and the terms under which it can be collected, rather than simply looking at any concept of return. If a person wants to make investments there are far better vehicles available, such as pensions policies and mutual funds, which will provide the required return and security.
