Written by Jayant Row in Investments
Viewed by 33 readers since 05-14-2009
Investment is a personal choice. Most people associate it with the stock market and the likely return that you can get from it. There are always big risks involved and you might do well to consider other alternatives while deciding on your investment strategies. Banks and fixed deposits, treasury bonds and other safe methods of investment will generally get you low returns, but they have almost no risk involved. Another alternative that should be considered by prudent investors is a life insurance policy.
A life insurance policy has the added advantage that in the unlikely case of your death, your family and dependents are covered and will receive the sum for which you are assured. This is true even if you have not made all the payments. This is a very big plus point and is not available to you in other investments. In the case of the stock market your dependents can only get the market value of the stocks that you had invested in. If there has been erosion in the value, they will have to accept a lower sum when they sell the stocks.
Look at life insurance for what it is. It is a hedge to protect your family in case anything happens to you. If you do take an insurance policy you have a legally binding document that will be honored by the insurance company. There are a lot of regulatory agencies that will ensure that the due payments are made.
There are two types of insurance that you can consider. Whole life insurance is a policy that has fixed payments or premiums to be made for as long as you are alive. In case you live to the ripe old age of 100, your premiums cease and the entire sum that is invested will come to you. Whole life insurance has an additional advantage. The company constantly declares dividends every year and depending on the sum assured, you would be eligible for these dividends. These dividends are like forced savings and will be added to your sum assured every year. When the final payment is made, either to your family in case of your death, or to you if you have crossed the age of 100, the dividends will all be added to the sum assured and you could get a tidy sum of money.
The other type of insurance is fixed term insurance. Here the sum assured will be yours after the period written into the policy. In case of your death, this sum assured is again available to your dependents even if the period has not been completed. Premiums on these sorts of policies are much higher, and even though these policies also get dividends, they are of a much lower value than those of whole life policies. A term life policy can be used by investors to plan for their retirement or old age, or to be timed to mature when they think that they will require extra funds for putting into real estate or even for education of their children.
Life insurance cannot be strictly termed as an investment as we know it, but the benefits that it can give you, in addition to the peace of mind that they can bring, have to be considered by prudent investors. Ensure that at least a part of the funds that you have are put into such instruments.