What's Wrong with Using Insurance as an Investment?

Having a pure life insurance plans are beneficial if you buy it with a point of view of saving and protection. But, if you want to buy a life insurance plan from an investment point of view then there are various other aspects that should be kept in mind. According to the market experts using life insurance as an investment is a bad choice to make. So, here we have discussed some reasons that why purchasing a life insurance plan from investment perspective is bad choice.

1. Life Insurance Plans are not Diversified- Life insurance plans do not provide any diversification in investment. Under life insurance policies a large chunk of money is put in a single plan relying totally on the goodwill of the plan that it will provide good return. This puts your investment in risk as you will totally have to depend upon the insurance company for the return. Thus, instead of investing a large amount of your egg in single basket consider investing in different investment based plans that provides high return of investment along with minimum risk involved.
2. Returns are Not Guaranteed- Life insurance plans do not provide any guaranteed return on investment either from stock or bonds. So relying only on life insurance plans in order to fulfill your financial goals can be a bad idea. Even in some of the best life insurance policies, the positive returns take quite a long time to appear. So if you want to gain short or long term return on investment, life insurance plan is certainly not the right choice to go for.
3. Does not Provide Liquidity- the asset or security that can be easily bought or sold in the market without affecting the asset price can be classified as liquid asset. In any investment plan the liquidity is very important because it provides you options. In order to secure you and your family future it is important to have more than options to save and multiply your corpus over time. In such case, a pure life insurance policy does not provide any liquidity. The initial years of investment in life insurance plans provides negative return which means the insured cannot get back the amount of money you put in. Most of the policy applies surrender charges, which the insured need to pay to the insurer as a cancellation fees when he/she decides to withdraw the policy.

All these factors make it difficult to offer liquidity.

1. You can Find Plenty of other Options for Investment- As the requirements of the insurance seekers are growing day by day, there are plethora of insurance policies available in the market that can be used as a great investment option and provide high return on investment over a long period of time. Moreover, the insurance seekers can compare the policies online and choose the best life insurance plan according to their own affordability and suitability.

Having a life insurance plan has its own significance as it provides financial backup to the family of the insured in case of uncertain demise of the insured person. However, life insurance plans offer numerous benefits to the policy holder and serves a valuable purpose, it should never be bought only from the investment perspective. The best way to make the maximum use of life insurance plan is to consider the various aspects of it before zeroing in on the plan.