Financial objectives: instruments versus life insurance


To invest or not to invest, is that even a question? It’s a well-known fact that when you invest, your money works for you, making you richer over time. Investing isn’t just about getting rich. It’s about building a financial safety net for you and your loved ones, because let’s face it, at some point in your life, you’re going to retire. Investing will help give you the financial freedom and stability you and your loved ones need when the time comes.

When it comes to investments, there is a wide range of financial institutions as well as financial instruments to meet all investment requirements, from wealth creation to general savings. Financial instruments are assets that can be traded, or they can also be considered as sets of capital that can be traded in the market1 such as money market investments, corporate stocks, bonds, real estate, etc.

Do you also consider life insurance as an investment instrument? If so, how important is life insurance as an investment? Should life insurance replace other financial instruments in your portfolio?

The truth is that, for those who are wise, both solutions are excellent and can be used to guard against different eventualities that may arise in life. The questions to ask then are; how can you benefit from both solutions and what will be the profitability of adopting both solutions?

So let’s try to solve these queries by first defining the two concepts:

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What is life insurance?

Life insurance is a legal agreement between a person and an insurance company. According to this agreement, the policyholder has to pay regular sums of money called premiums to the insurer. In exchange, the insurer must pay a predetermined sum of money, called a benefit, to the beneficiaries of the insured in the event of the latter’s death.

What is an investment?

The term “investment” is used when an individual allocates money with the expectation of receiving some benefit in the future. With financial instruments such as time deposits or mutual funds, a certain amount of money is invested with prospects that over time will reap the benefits of growth, due to the accumulation of interest.

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Now let’s take a look at the pros and cons of each solution.

Investments versus life insurance

Investments generally involve the setting up of funds with an investment company for a defined period at the end of which said funds are returned (or reinvested) accompanied by a predefined return on investment. Depending on the type of investment, there are different degrees of risk, with the rate of return on investments increasing as the risk increases.

So in general, although investments can offer higher returns, they also carry a much higher risk of loss. Many investment instruments also offer very little or no guarantee on the security of principal and/or interest amounts and are therefore not ideal as stores of value for loved ones. The exception to this could be real estate investments which of course have their own drawbacks and government bonds (treasury bills) which are usually backed by the sovereignty of a government.

Life insurance on the other hand is essentially a longer-term financial protection and/or savings vehicle that gives policyholders the means to protect the financial well-being of loved ones. Whether a “pure risk” policy or an “investment linked” policy, life insurance offers a guaranteed form of protection for loved ones while providing returns on investment, although only at lower than usual rates. investment instruments. Essentially, it can be said that while investments take care of the present and the immediate future, life insurance takes care of a lot longer term.

Life insurance as an investment

To decide if life insurance is a good investment, it’s important to understand the types of policies you can purchase. There are several variations of life insurance plans, but they generally fall into two categories: permanent and term.

Life insurance plans provide more than just financial coverage for your beneficiaries. They also offer a variety of features that allow you to customize your plan and extend the coverage provided by your policy:

  • Provides effective tax advantages.
  • It covers you against financial risks in the event of critical events. You can fall back on these funds when you are unable to earn money due to health issues.
  • In the event of death, insurance can also help your family or your heirs to ease the financial burden. A term insurance policy secures your family when you are away.
  • Capitalization contracts also act as a savings instrument because they offer the double advantage of insuring your life and being an investment instrument. Therefore, if the policyholder survives the term of the insurance, the entire amount is paid to the policyholder.
  • Finally, the ability to borrow from the insurance company against cash value is an unusual financial benefit and a big plus for any serious investor. After all, having access to credit can save you a lot of money.

There are many life insurance policies that offer both savings and investment components. For example, investment-linked insurance policies offer policyholders the unique advantage of combining the strengths of investments and pure risk insurance. On the other hand, long-term investment-linked insurance policies offer the guarantee of good investment returns as well as the necessary cushion for loved ones in case “life happens”.

Financial experts, however, advise that for greater value, the two solutions should be separated. This would mean, for example, that an individual would get the most out of buying a “pure risk” life insurance policy that offered cheaper premiums and then investing the premium savings (which would have been payable on a much more expensive investment-linked life insurance policy) in a higher productive financial instrument.

Should life insurance replace other financial investments?

Regardless of your budget or financial expectations, as an investor, life insurance should be part of your investment portfolio. You need to ensure that your life is insured and that you leave behind sufficient financial coverage for your beneficiaries, especially if you are the sole financial provider or have multiple dependents.

However, this does not mean that life insurance should replace other financial instruments that you might consider. People turn to financial instruments to achieve different short-term and long-term financial goals, depending on budget and future needs. Investment expectations are different, so it is not correct to say that life insurance can meet all expectations and replace all other financial instruments.

Anyway, even if life insurance is not a financial investment in the strict sense, it is still an investment. This is why it is recommended that one of the best life insurance plans on the market be part of your investment portfolio. Speak to one of our financial advisors today.


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