Not long ago, financial planners maintained a thumb rule-never mix insurance and investments. This was on the basis of the simple logic that the goal of insurance is quite different from other investment goals. In a broad sense, insurance is a hedge against the risk of potential financial loss in exchange for a premium. Insurance companies insure for losses that are measurable, accidental, unintentional, uncertain and non-catastrophic. The insurance company bets that you or your property will not suffer a loss while you put money on the opposite outcome.
The odds of recovering fees that the insured ends up paying to the insurance company, as against the amount for which the insurance company can be held liable if an accident happens, is extremely bleak. However, insurance in any of its forms like vehicle insurance, homeowner's insurance, life insurance or medical insurance, is a necessity in this world of uncertainty.
Investment is the purchase of an asset with the hope of getting a manifold future return or interest from it. Investment can be made in bonds, capital market, securities, gold, real estate, foreign currencies or mutual funds. Avenues are plenty. While there is no assurance of a fixed return, investments are made with the sole intent of reaping maximum returns. Some investment vehicles are for long-term, others for short-term. An investor needs to plan his finances well in line with his financial needs. |
