You’ve worked hard. You’ve saved as much as you could. You’ve made the right moves to secure your future. But what would happen if you outlive your spouse? What would happen to your children?
Replacing the breadwinner’s salary in case of death is the main purpose of a life insurance. It protects life. It insures life’s uncertainties and ultimately, that is death. Yourself is the most important investment because without you working, your family’s financial future will be in great trouble.
It comes into two basic types. Term Insurance and Whole Life Insurance. Term Insurance pays your beneficiaries if you die during the term of the coverage. It generally provides the highest death benefit for the lowest premiums, but once the term expires, annual premiums will increase substantially in case you still want to continue it. Whole Life Insurance, on the other hand, provides coverage for your entire life. That is, as long as you live, you are insured and you keep on paying premiums.
Nowadays, because some people view life insurance as a mere expense, insurance companies have devised this product called variable life insurance which has its savings component. Generally, in a variable life insurance, part of the premiums will be invested in a portfolio of investments that suits your risk appetite much like of a mutual fund.
But what’s the difference between a life insurance and a mutual fund as an investment product? There are a lot of insurance companies who offered me their products but I was hesitant because I thought it was just an expense for me since I’m still single. I did an excel sheet study before of this variable life insurance product which provides substantially high returns as against the returns of a mutual fund. What are the results?
First: Age and health are main considerations in a life insurance. The healthier and the younger you are, the lower your premiums will be. In mutual funds, they don’t consider these as long as you are capable of investing.
Second: In a life insurance, you cannot withdraw your whole principal investment whenever an emergency need arises unlike in a mutual fund.
Third: In a life insurance, the value of your investment is generally less than in mutual fund for the whole term EXCEPT for the death of the insured.
Because of these, I concluded that life insurance is generally for those who have dependents already. And for the single ones, it would just be a part of the expenses. Based on this conclusion, I did not avail it.
Recently, there was this credit card company, in partnership with a multinational insurance company, offered me a whole life insurance with premiums to be automatically debited to my credit card. The premium is just Php 461 (~US$9.4) monthly with sum insured of Php 1,000,000 (~US$20,000). Because of the low premiums, I availed it.
Whether life insurance or mutual funds, both investment products provide you with good returns for your hard earned money. Now, depending on your purpose and your needs, a life insurance or a mutual fund might be a suitable investment for you.