Aug 26, 2014,10.23 IST

Why choose life insurance over investment options

The sole objective of insurance is protection of your loved ones in case anything untoward happens to you. Insurance can also help you in meeting the expenses that come along with life’s milestones like children’s education andmarriage. It can also come to your rescue in times of illness and during your post-retirement years.

Let us see how life insurance scores over popular investment avenues like Public Provident Fund (PPF), Fixed Deposits (FD) and Mutual Funds (MF):

Life insurance versus PPF:

-- In a life insurance policy if the policyholder dies after paying even just one premium, the nominee will receive the entire sum assured. However, in case of a PPF account, the nominee will only get the amount that is deposited in the account along with interest.

-- PPF is a long-term investment (15 years). When it comes to an insurance policy, you can choose either a long-term one or a short-term one depending on your needs.

-- Life insurance policy is more liquid as compared to PPF given that you can opt for partial withdrawals, policy loans or even surrender a policy in case of an emergency and take the surrender value.                                                                               

Life insurance versus FD:

-- The only purpose a Fixed Deposit serves is that of investment. FDs do not provide life cover and protection, whereas this is the primary function of a life insurance policy.

-- A fixed deposit helps you fulfill life’s short-term goals. Insurance too can help you in doing this (depending on the policy you choose) and at the same time also provide for your family’s financial security. Depending on your financial objectives, insurance can work for you in the long term too.

Life insurance versus Mutual Fund:

-- Investment in MF is made either in debt or equity and only in one fund. In life insurance, the investment is made in a bouquet of funds.

-- Just like PPF and FD, MFs don’t offer the benefits of life cover and protection. Life insurance offers protection while at the same time also works as an investment tool. It all depends on the type of policy you select.

-- As compared to life insurance policies, mutual funds are considered to be short-term investment avenues.


Pension plans versus National Pension System

-- National Pension System or NPS (earlier New Pension Scheme), launched by Indian government in 2004 and regulated by Pension Fund Regulatory and Development Authority (PFRDA), has a a one-size-fits-all approach. However, pension plans, launched by private companies, are tailor-made keeping your requirements in mind. Basis your current and projected financial requirements, you can choose the plan that meets your objectives.

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