Insurance – A Better Investment Avenue

Mr. Vijay Gondaliya
Lecturer (MBA-Finance)

Introduction:

In India there are a number of Investment avenues but the Insurance Investment plan is better than the other investment avenues. The Insurance investment plan provides both Investment & Insurance.

Let us study one major investment product i.e. Mutual Fund which competes with Insurance.

Mutual Fund: 

Basic Concept

A Mutual Fund is a trust that pools the savings of a number of investors who share a common financial goal. The money thus collected is then invested in capital market instruments such as shares, debentures and other securities. The income earned through these investments and the capital appreciation realized are shared by its unit holders in proportion to the number of units owned by them. Thus a Mutual Fund is the most suitable investment for the common man as it offers an opportunity to invest in a diversified, professionally managed basket of securities at a relatively low cost. 

Advantages of Mutual Funds:

The advantages of investing in a Mutual Fund are:

• Professional Management

• Diversification

• Convenient Administration

• Return Potential

• Low Costs

• Liquidity

• Transparency

• Flexibility

• Choice of schemes

• Tax benefits

• Well regulated

Life Insurance: 

Basic Concept of Insurance

·         It is protection of Economic Value of an Asset.

·         Protection is needed against

·         Human life is most important life.

What is Life Insurance: 

The Economic value of a human life arises out of its relation to other lives. Whenever continuance of a life is financially valuable to others, whether to family dependents, business associates or educational and philanthropic situation, the necessity for life insurance is present.

• The basic concept of life insurance is to build a Common Fund from the premiums contributed by policyholders.

• The FUND undertakes to financially safeguard the policyholders against untimely death loss of earning capacity, and other things like purchase of a house.

• It is civilization partial solution to the problems caused by untimely death.

• Insurance lays the foundation of financial security against the “uncertain certainty” of death.

Why Life Insurance:

·         Provide security for the family-Combine risk cover and savings.

·         Plan for life’s uncertainties

·         Life Style maintain

·         Peace of Mind.

But here whole concept is related to the Human Life Value.

• Every human life is PRICELESS.

• However, the economic value of any life depends on the income and the provisions made for his/her dependants.

• Assets like property should not be liquidated to provide for the dependents requirements.

• Life Insurance is the instrument that allows you to achieve these.

ULIP (Unit Link Insurance Plan) works like Mutual Fund but in some way, it differs.

How ULIP benefits the Small Investors:

From the small investors’ point of view, the Insurance plan is more beneficial because of the following reasons:

• Insurance provide both Life protection and Savings (Investment).

• Low cost of Investment.

• Switching option free up to certain times.

• More option for the Investment; Like the insurance company provide the 5 to 6 options to put your money viz, Equity Index, Balance fund, Debt Fund, Equity Index, Etc….

Long term Investment.

The table below compares the benefits of ULIP against other investment avenues.

Here one thing to note is this that you have to pay for minimum 5 years’ premium (according to new guideline by IRDA) so the investor is forced to save his money by hook or cook. This way, the value of the human asset will increase.

Conclusion:

Insurance is a better option for the small investor or the uneducated investor because the insurance advisor provides need based policy as well as proper financial planning to the client. And insurance not only provides for life protection but also works as an Investment. So you get double benefit by investing in this Investment Avenue.

References:

www.irdaindia.com

www.amfiindia.com

www.allianzbajaj.co.in

www.licindia.com

www.indiatimes.com

Other related literature and magazine.

BACK TO CONTENT PAGE