Is Insurance superior to Investment?
The two are like Apples and Oranges. So different yet sort of the same.
Apples and Oranges are fruits but have different qualities or nutrient values.
Both insurance and investments are forms of security. But they exhibit different attributes.
When insurance sales guys approach us to sell us their policies, we start questioning them about the benefits that you can find in servicing these policies.
And of course, they tell you that you can be compensated in case of an incident or you will get some kind of money at the end of the policy.
The ‘smart’ Kenyans then start thinking, “why don’t I just invest that money I am using to service these insurance policies so that I can get bigger rewards at the end of my investment instead”.
They see insurance just like a sort of ‘savings’ plans.
And sure enough in most instances if you invest the money you will use to service a 10-year policy well, you might get more significant rewards.
But well, insurance is clearly different from a savings plan or an investment in so many ways.
This is not a comparison as such. It’s a discussion on how these two differ and the benefits that come with both because you definitely need them. I am not a financial powerhouse.
I am just a writer thinking out loud.
So these are some of the rewards you will reap off insurance.
Security
Your assets; farms, real estate, children’s education policy and nowadays even burial is covered by insurance.
Should something happen to you, your loved ones or property might be compensated.
Let me tell you a story of my friend who bought a car, and after driving it for just two days, he crashed into a roundabout and destroyed whatever he could with the vehicle.
He had only insured the car against accidents as it is required.
And so we were very sceptical if the insurance guys would compensate for the damages because he had just covered it a few days prior.
That was an exciting time for us to see if they actually compensate people as they claim.
True to their word, they finally did it, and the car was repaired. If he had planned to instead just be saving for car maintenance, it wouldn’t have been the same.
And that is one good thing with insurance.
Even if you have serviced your accident policy for only two days, should an incident occur, you will be compensated?
Sometimes no accident will happen for whatever period you have taken the cover, and of course, you can’t claim that money back.
Insurance works like that, and that is why people don’t ‘feel’ it at times.
They ask themselves “why should I ‘plan’ for something that might not occur, I am not wishing an accident for myself”.
But yes, life is unpredictable, and you don’t want to take that chance that a crash might not happen.
We have seen fires in properties or institutions that was triggered by an electrical fault, and if you have insured an establishment against such unforeseen incidents, you are covered.
You will be back in business before you know it.
Helps you lock money
This is the second point on insurance. That it helps you lock your money if you are bad at saving.
It is like a kind of a ‘fixed deposit’ account. If you are servicing an education policy for your son that will mature after 10 years.
You just can’t withdraw that money after 5 months, but chances are that you will withdraw that money if you had just kept in your savings account.
Now, I don’t know how good you might be with savings, but this is a strong point for some people with bad savings habits.
I guess most people overestimate their ability to handle money, and that is why insurance plans are there to enable you to ‘save’ for situations.
This is so that should you run into a problem with let’s say your crops on the farm and get bad harvests, you will be rewarded. Crop insurance is one of the most interesting forms of insurance I have seen of late.
I never knew something like that was possible, but I guess insurance firms are always upgrading their game.
Check out some of the biggest insurance firms in the 254:
Advantages of Investments
We have seen some of the situations that insurance can save you from. Now, let’s see what investments can do.
And I guess it can do more than insurance. Sure, insurance is almost guaranteed to come in aid during misery, but the investment is dynamite, it is like forever if it works out.
You invest smartly today, and your future might just be covered for the next 30 or more years.
The return on investment can be more significant than those from insurance.
If you continuously invest in the stock market for 10 years, you can get more significant rewards than what you could find by servicing policy for 10 years.
However, let’s say you have invested in real estate, and it is ‘real’ already. You have homes and penthouses.
You can now insure them against damage. In this case, insurance helps you protect your investments, and thus they can co-exist together.
More Insurance
This is a point that makes investments more reliable than insurance.
The fact that you have more insurance of getting payback from your input in investments than you do in insurance.
The fact that you have more insurance of getting payback from your input in investments than you do in insurance.
When you put your money in business by increasing stock, you are likely to get a return at the end of it all.
This is the opposite of how insurance works. In insurance, you are just servicing policy to protect you in case something happens.
That is generally how many policies works and in some instances, there can be a dispute if the firm feels like you are making an undeserved claim.
However, with investments as long as you are putting in cash, you are liable to get a return if it is a sound investment.
We have instances where you can lose money from investment too, but that is rare.
With good planning and a measurable track record, you can gain a great deal from an investment.
However, some investments are also forms of insurance. When you are investing in your education, you are insuring your future.
Because the return will be skills for survival in later years.
According to this article by Forbes, “life insurance is considered an investment”
Both insurance and investments have their advantages.
Depending on what you are looking for, they can equally co-exist.
An investment can be insurance, and an insurance can, in some cases, protects an investment.
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