Can Life Insurance Be Considered An Investment?

Can we perceive life insurance as an investment? While the primary purpose of life insurance is to safeguard the financial future of a policyholder's nominees/family in case of their demise, some policy types may also offer additional investment opportunities. So here's delving deeper into this question. 

What is an investment? 
An investment means committing any asset or money to increase its value over a certain period. An investment will necessitate an outlay of an asset in the form of cash, time, and individual effort/financial discipline. The purpose of any investment is to get a return/profit on the invested amount/asset. 

Is Life Insurance an investment? 
The question remains- Can you take life insurance as an investment? Most life insurance is bought for managing risks, while the death benefit functions as a hedge ensuring cash in case of any sudden or unforeseen death/demise of the policyholder. 
It helps repay any debt (home or personal loan) while ensuring income for the beneficiaries. However, life insurance can be taken as an investment owing to its associated tax benefits for policyholders. This is at a basic level. You can also opt for insurance policies offering life coverage and the opportunity for savings or investments, such as an Endowment plan or a ULIP. 
From all these angles, life insurance does translate into a crucial investment. You can always use a life insurance calculator to work out your total premiums and the returns that you get in the form of the maturity benefit or even the expected benefits in the case of a ULIP. 

Can you get returns from a life insurance policy?
Yes, you can get returns from your life insurance policy. Firstly, there are various types of endowment plans. These plans offer lump sum maturity benefits to policyholders if they survive the policy term. Hence, they pay out this accumulated corpus after the completion of the term. 
In case of the untimely passing away of the policyholder within the policy period, the death benefit is paid out to their nominees. Endowment plans are ideal for more risk-averse investors who wish to accumulate a lump sum for meeting future goals while benefiting from insurance coverage simultaneously. 
Secondly, there are ULIPs. They are unit-linked insurance plans which offer dual benefits of life insurance coverage and investments in market-linked funds. You will have to pay regular premiums to the insurance company to get life coverage, and these will also be invested in select funds for long-term wealth creation. 
 
You may deploy investments in several funds, including debt or equity funds, or even a combination of these types. You can choose the funds you wish to invest in while buying your ULIP. You will thus get a specified number of fund units. You can thus earn returns on the investment, depending on the market performance of these funds. 

What are the various types of Life Insurance Plans available in India? 
There are various types of life insurance plans. Some of them include the following: 
1.    Term insurance plans - These are basic plans offering a guaranteed sum assured upon the policyholder's death within the policy term. They do not have any investment component. Term insurance plans help secure the family's financial future and goals in the policyholder's absence. Although there are no maturity benefits, one can opt for a return of premiums at the completion of the policy term. 

2.    Endowment plans - They function like term plans, although they also provide a maturity benefit if the policyholder survives until maturity. Hence, there is a savings component to these plans. An assured death benefit is paid out to the nominees of the policyholder in case of their demise within the policy tenure. Otherwise, a lump sum maturity amount is paid out upon the completion of the policy tenure. This maturity amount can vary depending on whether the plan is participating or non-participating. 

3.    ULIPs - These plans offer life insurance coverage along with investments in equity, debt, or a combination of these funds for wealth creation. They are more suitable for investors with varying risk tolerance since they invest in different market-linked funds, with returns depending directly on their market performance over a sustained duration. 

4.    Whole life policies - Most life insurance policies ensure coverage for a specific tenure. However, these policies cover their policyholders throughout their lifetime. After the premium payment tenure ends, the policyholder may get regular or a lump sum payout of maturity benefits if specified in the policy. Moreover, a loan can also be taken against this policy (after 3 years of purchasing it) in case of an emergency. 

5.    Annuity Plans With Life Cover - Also called pension plans, these are primarily for ensuring regular income after retirement. This is done by spreading the accumulated policy corpus per the applicable terms and conditions. 

Who can you make the most of these plans?
While the fundamental purpose of a life insurance policy is to secure the financial future of your nominees in your absence, you should look for plans that also help you meet future goals alongside. Term insurance plans are suitable for securing your family's future and financial goals in case of your unfortunate demise. ULIPs are ideal for investors comfortable with market risks since they invest in market-linked funds to earn returns over a steady period. They also provide life insurance coverage alongside. 

Endowment plans are suitable for those who are slightly risk-averse since they provide insurance coverage while coming with an assured maturity payout upon the completion of the policy tenure (if the policyholder survives the same). Whole-life policies and annuity plans are suitable for specific investors, i.e. those who suffer from chronic ailments and require long-term coverage at comparatively reasonable rates and those who desire a steady monthly income after retirement.