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Business News/ Insurance / Insurance: How is your plan an investment instrument too? 5 key reasons explained
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Insurance: How is your plan an investment instrument too? 5 key reasons explained

Life insurance savings plans such as endowment, money-back, or Unit-Linked Insurance Plans enable investors to accumulate wealth over time. These policies are meant to help individuals achieve their long-term financial goals

With features such as surrender value, collateral and tax benefits offered by insurance products, lines between investment and insurance are often blurred. Premium
With features such as surrender value, collateral and tax benefits offered by insurance products, lines between investment and insurance are often blurred.

At the time of buying an insurance plan, investors often consider assured returns as key incentive, while wealth generation is seen secondary, if at all. Investment experts, however, often assert that a well-chosen insurance plan not only offers good returns, helping investors accumulate wealth over a period of time, but also provide insurance benefits at the same time.

With features such as surrender value, collateral and tax benefits offered by insurance products, lines between investment and insurance are often blurred. 

So, if you are planning to buy a life insurance product, it is not irrational to consider this as an investment instrument as well.

“Essentially life insurance savings plans like endowment, money-back, or Unit-Linked Insurance Plans (ULIPs) provide a means to accumulate wealth over time. These policies are structured to assist individuals in achieving their long-term financial goals," Srinivas Balasubramanian, Head of Products, ICICI Prudential Life Insurance Company told MintGenie in an interview.

Key reasons to consider life insurance plan as an investment option too:

1. Collateral to raise loan: Insurance plans can be used as a collateral for the purpose of raising loan. So, these contributions are seen as investment, thereby, enabling the policyholder to raise loan as and when the need arises.

2. Surrender to raise money: Policyholder can surrender a life insurance plan after five years to raise the money as indicated in the ‘surrender value’. As a result, these plans have financial value at the same time. 

3. Higher returns in ULIPs: As the name suggests, ULIPs offer the double benefits of insurance and investment. These plans work as investment plans and give market-linked returns at the same time. Unlike a pure term insurance plan, these plans work as wealth generating financial instruments as well.

ALSO READ: Can a high sum-assured ULIP offer better cover, returns?

4. Tax benefit: Premium paid towards life insurance qualifies for tax deduction up to 1.5 lakh under section 80C of I-T Act.

5. Sum assured: All in all, these investment benefits do not alter the basic fact these plans offer insurance cover, too, at the same time to policyholders wherein they carry the promise of minimum sum assured. 

Meanwhile, policyholders are recommended to opt for wealth-generating insurance plans only after evaluating all the pros and cons. Because some investors end up with getting inadequate insurance cover when they prioritise wealth generation over sum assured. 

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Published: 13 Feb 2024, 10:17 AM IST
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