Here is one big question: Which one you should prioritize in life: Insurance or Investment? I meet some of my friends that either inclined to both of them. Some of them are so eager about any types of financial investments that could give him good reward and security in the long run. Example of these investments is stocks, gold, etc; while some of my contacts are so concerned about having insurance in life. They asked me about what could be the best life insurance, medical insurance, etc. Some people claim insurance is an investment. Yes in some cases like for example a life insurance. But does insurance really considered a good investment to everyone? Technically investment means:
1.) Putting money into an asset and then grabbing the rewards later. A good example is when you buy a certain piece of real estate for a certain amount; when the price increase in the long run, if you sell it; you can reap profits or rewards. Remember that you have control when to liquidate or sell your investments.
2.) Putting money into an asset while you grab money in periodic intervals, such as monthly, etc. A good example is stocks. If you invest some money in stocks, the companies can be paying you dividends monthly, quarterly, it depends. Another case is putting money in bonds; you can withdraw some profits in a quarterly basis for example. There are many types of investments that fall into this category.
3.) Investment is a by-product of wise money management where you have control over its costs, fees and taxes. On the other hand, insurance means:
1.) Putting money into in the hope that when there is an emergency you will never run out of cash or your dependents. A good example is that if someone is hospitalized you will only pay a little and the insurance will pay the entire amount.
2.) Putting money in the hope of future security to replace an economic loss. In some countries, there is government insurance where you will be contributing monthly payments and then time will come that you will retire and then they will be paying you monthly.
3.) Insurance requires higher fees and expenses to get going and working to the point where you can really question its benefits. Looking between the two definitions they are similar, but definitely they are very DIFFERENT:
1.) If you contribute in insurance agencies, like for example in some countries where employees are required to be a member of some sort of insurance, they will be paying contributions or premiums. If they would like to withdraw their entire contributions (it’s their money anyway) so that they can use it for whatever reason– it’s not possible. In an “investment”, you can always bring back your original cash. Although any investment carries some form of risk, you have higher chances of bringing back your original money in an “investment” than in “insurance”. If you put your money in stocks, you can always withdraw, same with high yielding deposits or any other form of income generating assets.
2.) Investment is a better form of insurance because you will always enjoy its benefits without even hurting yourself, or waiting to be old/retire to enjoy benefits. A good illustration is that if you have a medical insurance, you will never avail it if you will never be sick or in a serious medical condition. Who is stupid enough to get sick frequently just to avail the medical insurance benefits?
3.) Investment calls for “better money management” skills than relying on insurance. Most people are afraid to pay a big amount of money in relation to an accident, losses, fires, hazards, etc. it is why they get sold to an idea that having an insurance is very necessary. The truth is that accidents do happen. The best insurance you can have in your life is protecting your best investment. Protecting does not necessary mean buying insurance, but:
a.) Proper money and asset management, to ensure that asset will continually increase its value in the long run independent of its owners.
b.) Allot a percent of money generated for accidents (by re-investing this money into another investments but not putting the money in insurance).
c.) Think twice in all decisions in life. You can drastically minimize accidents. If you are too concerned about health, take drastic steps to cut heavy alcohol intake, cigarette abuse, etc. Exercise frequently to get those fats and cholesterol burned. This is better than any medical insurance coverage at no cost to you. If you have a portfolio of investment, it is smart to re-invest 10% of your entire cash generated as “insurance” for anything. Never spend it, only spend it whenever there are emergencies.
4.) The cash value of a whole life insurance grows at a very little rate of return of around 2% to 4%. In other forms of great investment, you can always have higher returns, higher rewards at same driving capital. Finally a good quote that I’ve read NyTimes.com regarding insurance: “… At some point, it is a reasonable goal to be at the point where you are secure enough financially that you no longer need life insurance.” That’s my point; the only thing that can secure you financially is through wise and well-planned investments. It’s the best protection to any economic loss.