Whether life insurance is an investment or expense, has undeniably been the first question that pops up when we decide to get a life insurance. There are various arguments about this. For someone who is planning their finances for a long-term, understanding whether insurance is an investment or expense is very important. We decode this question here.
But first, let’s start with understanding what insurance is, in simple terms:
What is insurance?
Insurance is nothing but a shared risk plan of unforeseen events like critical illnesses or death with people who want to have some financial backups during such events. An Insurance company, takes money from an individual, in the form of premium and in return offers to insure the person.
Why is it an investment?
Your emergency funds
Insurance covers you against financial risks in times of critical events. Hence, it’s a fund you can fall back on when you are unable to earn money due to any sort of health problems. In event of your death, insurance can also help your family or dependents to mitigate financial expenses. Policies such as term insurance secure your family when you are not around.
Endowment policies give you a chance to pitch in money in the form of premium giving you a chance to withdraw that money after maturity. It serves the dual benefit of insuring your life and being an investment instrument. Hence, if the policy holder survives the term of insurance, the entire amount is paid to the policy holder.
Why is it an expense?
Your expenses are briefly everything you spend on products and services that you need or want. Insurance policies is the money you spend to earn a security against unforeseen events.
If you are wondering how can it be both, an investment and expense then the answer lies in your motive to get the insurance. Depending on the type of policy, the amount you invest and your intention to get the insurance, it will be classified in either of the brackets.
You take the call
Whether to treat your insurance policy as an expense or as investment is completely your call. It’s always advisable to have a pure life insurance to protect your family and loved ones from any sort of financial crisis. However, if you wish to not treat it as an expense, you can always get the endowment life insurance that will give you a partial benefit of being an investment and that of life insurance. However, endowment might not cover you as much as a term life insurance will cover you and your family.
How to buy insurance?
Insurance can be bought online or through an agent. Companies have simplified the process of buying insurance online. There are also various websites that help you to choose and compare various policies. Alternatively, you can simply give a call to the customer service or leave your details behind on the company’s website for a call back from an insurance agent . Start today and include insurance in your financial plan either as an expense or as an investment depending on your financial goals.