Do not mix insurance and investment

A while back a reader informed us why pure life insurance goes against his religious beliefs. According to him, it works like a betting game. Let's say you insure yourself for Rs 10 lakh at an annual premium of just Rs 2,000. What this means, according to our reader, is that you are willing to bet that you will die this year and so you willingly cough up Rs 2,000. The insurance company bets that you will not die and is willing to pay your family Rs 10 lakh if you do. If you survive - which we're sure you would really love to - you lose the bet and the insurance company walks away with Rs 2,000. If you win the bet, you know what happens. This goes on over a period of 10, 15 or 20 years, whatever the term of the policy. And so, he concludes, that it goes against his faith to lay a wager on his life. This compelled him to arrive at the conclusion that a policy which gave him a return would be a good option because he could view it more as an investment. An interesting way around his particular problem. But not a wise conclusion. Insurance is not an investment First things first - insurance is not an investment. When you invest your money somewhere, you expect something back. Not so with pure term insurance. If you die, your nominee gets something. If you live, no one gets anything. Now that may sound like a raw deal. But hey, that's what life insurance is all about! Ironically, life insurance is not about life, but about death. In their bid to get something out of the money given to the insurance company, investors opt for insurance policies that give them 'something

This article was originally published on August 19, 2021.