Kash Avena
You want to do the smart move and put a portion of what you’re earning today towards saving for your and your family’s future. The thing is, you don’t know where to start. With all the insurance and investment offerings out in the market, you may find it hard to choose the type that aligns with your immediate and long term goals.
So what is the difference between an insurance and an investment plan? To understand this, it helps to define what each one does for you.
What is an Insurance?
Insurance is a service or plan you purchase with the intention of guarding against loss of life, property, or health, as well as theft or damage. For instance, getting a Car Insurance protects you from the financial havoc of damaging your car or that of another party in the event of an accident. Depending on the type of car insurance you get, the insurance company can cover damage to one or both vehicles, or replace your car altogether.
Another common type is the Life Insurance. You’ll benefit from this if your goal is to provide a single-sum income for your dependents when you pass away. There are two basic types: the Term Life Insurance, where your dependents are guaranteed an amount during the term of the policy, usually between 1 to 30 years; and the Lifelong or Permanent Insurance, where the income for your beneficiaries is guaranteed no matter how long you live.
There is also the Annuity, where you either make a lump sum or a series of payments, which get returned or disbursed back to you at regular intervals in the future. The goal of annuities is to provide you an income after you retire. It can only be withdrawn after you turn 59 and a half years old. Think of it as a pension fund that you pay yourself. Another way of viewing it is your current self paying your future self to live in security and comfort.
What is Investing?
Investing, meanwhile, is when you give money or assets to a third party in exchange for the return of that money or assets with profit on the original value at an agreed point in the future.
Bonds are a common form of investment. Purchasing a bond means lending your money to a company or government, in return for an interest. This is generally a safe but low-returns type of investment, where you get your money back and make a small profit. You may want to get bonds if you want to earn a higher interest than a savings account, but are not willing to take risks to earn higher.
On the other hand, purchasing Stocks equates to you being part owner of a business. When you purchase stocks from a publicly-listed company, you become entitled to its profits and earn dividends. While they can potentially net you a larger profit, stocks are high-risk and returns are not guaranteed. If you have money you can afford to lose, and want to earn high in the market, this may be the type of investment for you.
Lastly, Mutual Funds is a mixture of stocks and bonds. This allows you to pool money with other investors to pay a professional investment manager to select what securities to invest in. This is a mid-risk, mid-returns kind of investment for those who are willing to lose some money in exchange for bigger returns.
What to get: Insurance or Investment?
The answer is simple: it really boils down to what you need now, and in the future. As the name implies, an Insurance takes care of a financial basic, such as a nest egg for you and your loved ones in the future. An Investment allows you to turn a profit with existing, excess money.
Now that you are armed with information about insurance and investment, you can be more confident in shopping around for the plan (or plans) that best suit you. If you have an urgent financial need that needs to be addressed now, you might want to research on the benefits of getting a loan.
A loan allows you to borrow money from a person or financial institution. Loansolutions.ph can help you get a loan by connecting you to its network of top banks and financing companies. Their Loan Concierges can answer your every question, and guide you through the whole process — from application to processing documents to claiming your loan. Their 3-Step Loan Application lets you know your loan options in 3 minutes.
