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What is Investment Insurance?
Table of Content
Investment insurance is a combination of insurance and investment components. It is an insurance plan that offers life cover to secure your family against future eventualities and aids wealth creation to meet various financial goals. Variable Universal Life Insurance is a good example of this investment plan. With the lump sum provided in case of any eventuality, the plan ensures financial safety for your family and the investment component helps grow your money by investing a portion of the premium in market-related assets.
Understanding Insurance and Investment
Insurance and investment are essential elements of financial planning. The benefits are unique to each of them and together they enable financial security for your family and investment growth. Insurance secures your family financially with an insurance policy payout in case of an unexpected event. Investment on the other hand emphasises creating wealth over time. It allocates funds to various assets like equity, mutual funds, bonds, etc., for long-term financial growth.
To get the combined benefit, understanding what is investment insurance is important. Investment insurance offers life coverage for your family’s financial security in your absence while helping grow your money by investing a part of the premium in various market-related assets or assets that provide guaranteed returns depending on your goals and risk tolerance.
How Investment Insurance Works?
After understanding what is investment insurance you should know how it works before considering investment options that provide the benefit. Investment insurance provides the dual benefit of insurance as well as investment. When you purchase an investment insurance plan, you will pay a certain insurance premium depending on the sum assured and tenure at regular intervals. A part of the premium will be utilised for life coverage, and the remaining will be invested in various market-related funds depending on your risk tolerance and timeline.
The return on investments (ROI) can be accessed in times of need while the sum assured remains intact. If you survive the policy term, you will receive the accumulated premium and the yield made on the investment.
What are the Key Benefits of Investment Insurance?
The benefits of investment insurance are manifold. Some of them are:
Benefits of Flexible Premium Payments
The flexible premiums payment benefit enables your money to grow at a faster pace. The premium for the plan will be fixed at the time of opening the account, depending on the terms and conditions of the plan. A portion of it will be allotted for life coverage, and the rest will be invested in various assets to gain returns. You are allowed to pay more than the assigned premium. The excess premium will be added to the investment portion, and you will get higher returns, and your money will grow faster.
Money for Emergencies and Fun
Having an investment component in addition to insurance will earn returns which you can utilise in case of need or reinvest for gain. To remain on your wealth creation track it is recommended to reinvest the returns to further grow your money. The gains from the reinvestment can be utilised for any emergencies that crop up or for recreation.
Higher Return
Unlike conventional life insurance plans, investment insurance plans optimise the returns by investing a portion of the premium in market-related assets like stocks, bonds, or both to create a substantial corpus.
Your Policy Remains Unaffected
In an investment insurance plan, the returns on the premium investment fluctuate according to market trends. Both gains and losses can be expected. Also, higher premiums will fetch better returns. However, the insurance component will not be affected by the outcome of the investments.
How to Choose the Right Investment Insurance Plan?
Reviewing several factors is essential to choose the right investment insurance plan. They are:
Financial Goals
Assess your financial goals. Check for the lock-in period to ensure the plan aligns with your goals and is the right long term investment plan for you.
Risk tolerance
The funds in the plan should match your risk tolerance. If long-term capital growth is your requirement, choose equity funds and if you prefer capital protection, choose debt funds.
Charges
Compare premiums, policy administration and funds management charges. Select a plan that seems affordable.
A plan that complies with all the above factors is right for you.
Is Investment Insurance Right for You?
If you prefer both investment and insurance elements, then investment insurance is right for you. It is an ideal plan if you prefer wealth creation along with financial security for your family. You can ensure your family’s financial well-being with the insurance component while creating a corpus for long-term financial goals like children’s education, buying a dream house, etc. The plans that suit you are ULIPs or VULs.
If you are looking for immediate returns or optimising returns without insurance, then investment insurance may not be suitable for you. You may require a short term investment plan like a savings plan or mutual fund.
On the other hand, if your choice is financial security for your family with an affordable premium, term insurance is apt for you.
Summary
Investment and insurance are two mandatory components for prudent financial planning. Choosing investment and insurance plans separately can be a tedious ordeal. Investment insurance simplifies investment planning by incorporating both in a single plan. The insurance component provides financial support for your family if the inevitable occurs during the plan period. The investment component helps create a corpus to meet your various financial goals. However, before purchasing a plan, you should consider your financial goals, risk tolerance, and affordability.
FAQs on Investment Insurance
Q. What is the investment insurance?
investment insurance offers both insurance and investment benefits whereas traditional life insurance policies provide only life coverage for a family’s financial security. A part of the premium paid will be allocated for life cover and the rest will be invested in market-related assets like equity, bonds, mutual funds, etc.
Q. How to earn money from insurance?
You can earn money from insurance by availing a loan against the surrender value of the insurance policy. This enables access to funds in case of emergencies while preserving life coverage. Another way is to surrender the policy before maturity and withdraw the accumulated funds or the surrender value.
Q. Is insurance better than investment?
Insurance and investments have unique benefits. Insurance takes care of your and your family’s future, investments take care of your present and future. Both are essential components of financial planning and complement each other.
Q. Are the returns from investment insurance guaranteed?
No. The returns from investment insurance are not guaranteed. Market trends and changing interest rates influence the returns to a great extent.
Q. Can I adjust the premiums or investment amount in my plan?
Yes. You can adjust the premiums or investment amount in your plan to align with market trends and your goals.
Related Articles:
What Is an Endowment Plan? Meaning and it Types | HDFC Life
Fixed Deposit (FD): A Smart Saving Solution | HDFC Life
Most Important Steps of Investment Process - HDFC Life
NRI Investment Plans| HDFC Life
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Francis Rodrigues
Francis Rodrigues has a decade long experience in the insurance sector, and as SVP, E-Commerce and Digital Marketing, HDFC Life, manages the online sales channel, as well as digital and performance marketing. He has had hands-on experience in setting up sales channels and functional teams from scratch over a career spanning 2 decades.
Written By:
Vishal Subharwal
Vishal Subharwal heads the Strategy, Marketing, E-Commerce, Digital Business & Sustainability initiatives at HDFC Life. He is responsible for crafting and ensuring successful implementation of the overall organisation strategy.
Reviewed By:
HDFC Life
Reviewed by Life Insurance Experts
HDFC LIFE IS A TRUSTED LIFE INSURANCE PARTNER
We at HDFC Life are committed to offer innovative products and services that enable individuals live a ‘Life of Pride’. For over two decades we have been providing life insurance plans - protection, pension, savings, investment, annuity and health.
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** The past 5 year fund performance of HDFC Life Discovery Fund (SFIN: ULIF06618/01/18DiscvryFnd101) as on 30th November 2024. The benchmark taken into consideration here is is Nifty Mid Cap 100 which as a return of 26.77% as on 30th November 2024. HDFC Life Discovery Fund is available with HDFC Life ULIPs which comes with a life cover. Please note past fund performance is not indicative of future performance.
18. Save 46,800 on taxes if the insurance premium amount is Rs.1.5 lakh per annum and you are a Regular Individual, Fall under 30% income tax slab having taxable income less than Rs. 50 lakh and Opt for Old tax regime.
ARN - MC/12/24/18667
