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Education Centre Difference between Life Insurance and Investing in Investment Funds
Education Centre Difference between Life Insurance and Investing in Investment Funds | Difference between Life Insurance and Investing in Investment Funds |
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Life Insurance is a way to protect yourself and NOT multiply your money. Life Insurance is taken in order to limit risk in case of any happening like accident, sickness, injury or any other life threatening event.
Life Insurance works by providing a financial cover to the insured whose family can expect to be more or less on the same financial grounds before the occurrence of the tragedy. For example if a person had a road accident and passes away, it’s a great loss to his family. They lose a loved one and also lose the money he earned to take care of his family. This puts the family who is already experiencing great emotional turmoil into financial difficulties as well. However, if the person had an insurance cover, a lump sum would be handed to the family in case of his death. This cannot bring the loved one back but can soften the blow as providing money for the family who otherwise might be forced to face great financial difficulties. In other words Life Insurance brings the monthly pay check to your immediate family even while you are no more. Therefore Life Insurance is more of a replacement of Income which you would be earning while you are alive and NOT an investment. Life Insurance is clearly a method to hedge and protect rather than an investment act. Life Insurance therefore cannot be used as a financial growth vehicle. It is to protect your dependents and you might not consider buying it if nobody is dependent on you. Since life insurance does not pay you at all, it cannot be termed as an Investment to secure your Future. Investment Funds On the other hand, Investment Funds for example Mutual Funds are professionally managed vehicles for compounding wealth. Money is collected from various investors and invested in stocks, bonds, securities and other money market instruments. This collected amount is then traded under a professionally managed set up realizing profits or losses and passes on the proceeds to individual investors. How do Mutual Funds work? It is the job of the Professional Investment Manager to buy and sell securities for the highest fund growth. When you invest in a Mutual Fund, you become a “shareholder”. If the Mutual Fund Company experiences growth and profits, investors will be passed on the benefit as “dividends” which increases the value of your share. In case there is a loss to the company, the value of the investor share decreases. What you should worry about? Since mutual funds are managed by another company, people tend to forget about the same. That is however not the best strategy and you must keep your records since it’s your money after all. What you can be relaxed about? However, you need to worry about whether your money is put to best use and whether the company is investing rightly. The company’s existence is owing to the profits they make and your investment manager surely wants his pay check coming to him month after month which is possible only when the company is doing well in the market. You certainly do need to research as to which mutual fund company you will put your money into. This will also depend on the risk you are ready to take with your hard earned money. Australia today has the world’s fourth largest mutual fund market which is attracting overseas money managers as well. It is also expected that by 2015, Australia will have more than half of all retirement savings from the Asia – Pacific region |
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