Posted by: Admin
Insurance and Investment, What's the Difference??
Many people mistakenly think that insurance is the same as an investment. This is because there are insurance products that do contain investment products or unit links. But in fact, the difference between insurance and investment is evident in the two financial products' objectives.
4 Difference Between Insurance and Investment
You can see the difference between insurance and investment in the first place from the purpose. Investment is a financial product that aims to develop your funds or assets to achieve a financial goal. These financial goals include the costs of getting married, buying a house, buying a car, going on the pilgrimage, funding for children's education, pension funds, and so on.
Insurance is a financial product that aims to protect you from risk. So that when the risk occurs, you or your family can still achieve the planned goals.
You can then see the difference between insurance and investment from the results. You can enjoy the results when investing money in investment products that are visible assets, and the amount can expand or decrease according to market conditions.
Meanwhile, the result that you can enjoy when buying insurance products is protection. In life insurance, for example, the results you can get are in the form of the sum insured if you die during the policy protection period. The family can use this accountability money to continue life and achieve financial plans in the future. In health insurance, the benefit you can get is reimbursement of medical expenses if you are hospitalized because of illness.
However, you will not get this insurance benefit if there is no risk. Then, the money you deposited for the insurance premium will also not be returned if there is no risk. This invisible result is often mistaken for "lost money" by some people who do not understand insurance work principles.
Investments carry an uncertain risk, in which your assets or funds will decrease or increase. No one can guarantee that your assets will go up or down if you place them in investment products.
You need to manage and control both of these risks so that your finances do not decline. Insurance is a way of transferring financial risk to the insurance company if you experience illness or die.
4. Flexibility of funds
The amount of funds you spend on investment is flexible. You can increase or decrease the number of funds that you place in investment products as needed. Meanwhile, the premium you pay for insurance products is still by the policy you signed.
What if you are looking for both insurance and investment products?
The public's desire for a practical product, namely insurance, which at the same time contains investment, eventually gave birth to a product called unit-linked. By buying unit-linked, you can get two benefits in one product: protection and fund development.
It's okay if you end up buying unit-linked products for reasons of practicality. But you still have to realize that the main product in unit-linked is protection, while investment is a bonus. So, you still need to adjust the product you buy according to your needs.
Then, realize also that buying two products will be more expensive than buying one product. That is why unit-linked premium prices are higher than you buy pure insurance. Don't forget to regularly evaluate your unit-linked effects to ensure that your fund development aligns with your needs. If it is below expectations, you have the flexibility to add or top up your investment in unit-linked products or add to it in a particular investment product.
With the explanation above, I hope that now you understand the difference between insurance and investment.