Really, which should you prioritize first?
People are generally more engaged when I offer them an investment rather than a life insurance. Most people know, intellectually, that life insurance is necessary but people want to place their money on investments with benefits they themselves can enjoy. Before becoming a financial advisor myself, I am actually motivated the same way. But one of the things I am grateful about my job is to have learned to appreciate the importance of life insurance and to be able to share this learning to people I sit with daily.
Now, what is the difference between an investment and a life insurance plan? To understand this, it helps to define what each one does for you.
What is investing?
Investing is when you give money or capital to an endeavor with the expectation of obtaining an additional income or profit at agreed point in the future.
There are different ways you can go about investing, including placing your money into stocks, bonds, mutual funds, UITFs, real estate, or even starting your own business.
Investing also lets you take advantage of one of the miracles of mathematics: compound interest.
What is a life insurance?
Life insurance, meanwhile, is a contract or policy which you purchase with the intention of protecting you and your family against financial loss due to different life risks you can have during your lifetime: premature death, sickness, accident and disability.
Traditional life insurance has two types namely Term insurance and Permanent life insurance.
Which should you prioritize to buy?
Life insurance and investment are two different financial products which serves different purpose. You should get a plan which will cater to what you need now, and in the future.
Investing is accumulation of wealth. You are putting in a large amount of capital for you to earn interest. There are associated risks involved which is due to volatility especially for stock investments. The value of stocks can rise or fall sharply within a short period of time; hence, the money you invest can either have gains or losses in a certain period.
Insurance, on the other hand, is creation of wealth. You pay the interest to generate capital. It is guaranteed and a promise to pay by the insurer to you or your beneficiaries suppose anything happens to you.
Time is a factor for investment. In order for your capital to earn, you need to hold it for a period of time. Life insurance, meanwhile, doesn’t need time to accumulate the capital.
Think about it. Say for example, you have a goal of P1M in 10 years and you choose an investment as the vehicle. And then on the 5th year, when you already have P500K, something happens to you. You or your family will only get P500K. If you buy for yourself a life insurance, on the first day of getting your policy approved, you are already protected for P1M. If anything happens to you on the 5th year, you or your family can receive P1M.
That is why I advise my clients to consider life insurance before investments especially if they are breadwinners. Life insurance is your backup plan, should anything happen to you, you can still achieve your capital goal and your family can continue to live the standard way of living that they have in the present.
Good news, you can get both the benefits of a life insurance and investment with a VUL or Variable Universal Life policy. If you’re interested to know more about VUL, watch this video.
Interested to know how much it costs to get yourself protected with investment? Click here for FREE proposal.