Can Life Insurance Replace Other Financial Instruments

2024-08-02

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The average investor makes a variety of investments over the course of his or her lifetime. These investments typically serve a number of purposes. Some of them might be centered around wealth creation, while others might be solely focused on savings. All in all, there is an array of financial instruments available in the market to meet every investment requirement.

However, this leads us to an important question: do you also consider life insurance an investment instrument? If so, how essential is life insurance as an investment? Most importantly, should the best life insurance plans in the market replace the other financial instruments in your portfolio?

These are essential questions, not only for potential insurance seekers but for all forms of investors as well. So, let us try to resolve these queries by exploring the topic in detail:

What is Life Insurance?

Simply put, life insurance is a legal agreement between a person and an insurance company. As per this agreement, the policyholder must pay regular amounts of money known as premiums, to the insurer. In exchange, the insurance provider must pay a predetermined sum of money, known as a benefit, to the beneficiaries of the policyholder in the event of the latter’s demise.

The best life insurance plans in the market offer more than just financial coverage to your beneficiaries. They also offer a variety of features that allow you to customise your plan and extend the coverage provided by your policy.

Life Insurance As An Investment

In order to determine whether life insurance counts as an investment, we must review what the term means. The term ‘investment’ is used to refer to something to which an individual allocates money with the expectation of receiving a benefit sometime in the future.

In the case of financial instruments such as a fixed deposit or a mutual fund, a certain amount of money is invested with the expectation that over time it will reap the benefit of growth, due to accumulating interest. The case is similar yet somewhat different with regards to the best life insurance plans for you.

Allocating money into the best life insurance plan in the market is essentially an investment into the future financial well-being of your family. The benefit it provides in return for your premium payments is also monetary and can be availed by your family at a time they need it the most.

Life insurance also serves as a means of investment in other ways. For instance, some of the best life insurance plans in the market are accompanied with effective tax saving benefits as well. You can avail deductions of up to Rs. 1.5 lakhs on your life insurance premiums under Section 80C of the Income Tax Act. Moreover, the life insurance benefit received by your family will also be exempted from tax under Section 10 (D). Certain life insurance plans also offer a feature whereby your premiums paid are returned to you at the maturity of your policy.

Replacing Other Financial Investments

No matter what stage of your life or career you might find yourself in, the best life insurance plans can be an effective way of safeguarding the future of your loved ones. Hence, life insurance is without a doubt an essential investment for every individual.

However, this does not directly imply that life insurance must replace any other financial instruments that you might be considering. Investors come from a variety of backgrounds and there is a range of investment capital that they can spend. They turn to financial instruments to meet several different short-term and long-term financial goals, as per their budget and future needs. Since investment expectations can be so different, it is not accurate to state that life insurance can meet all such expectations and replace all other financial instruments.

What is important to consider, however, is that life insurance should be included in every investor’s portfolio. No matter your budget or financial expectations as an investor, you must make sure that your life is insured and that you leave behind ample financial coverage for your beneficiaries. This is especially true if you already operate on a tight budget, are a sole financial provider or have a number of dependants.

Conclusion

Life insurance may not be a financial investment in the strictest sense. But it is still an investment that has the potential of benefiting your loved ones for years to come. That is why it is recommended that one of the best life insurance plans in the market should be a part of your investment portfolio.

If you too are on the lookout for a credible term plan for your family’s future needs, look no further than the iSelect Smart360 Term Plan from Canara HSBC Life Insurance. With this term life insurance plan, you can also avail benefits such as inbuilt covers, multiple payout options as well as customising coverage according to your specific requirements.

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