Investment or Insurance?
How many of us have some documents from an insurance company packed up somewhere in our desk at work or at home and all we remember about those documents is that there is a monthly deduction from our pay slip and it takes care of your insurance? We are many. But why is that the case? Why is it that even after we have had everything explained to us and we signed on the dotted lines we still can’t remember much detail about the product, whether it’s serving to help you cover insurance or investments and we are not sure after a while.
I know from experience that there are some of us that buy financial products to avoid the pain being pestered by a product agent, however today I just want to give you some helpful tips that will make it much easier to remember which product is which and which future pain it avoids.
“Human beings make decisions to either avoid a pain or to make a gain.”
The answer is simple. Human beings make decisions to either avoid a pain or to make a gain. When we purchase a financial product from an Insurance company it is normal for us to forget the details because, by making the purchase at the time, we tell ourselves that a pain has been avoided. We are designed to shelve memories of distant nature into our subconscious and hope that when there is need for the information we can always open our desk and check.
Firstly, we need to compartmentalize the solutions we purchase from financial institutions into two broad categories, Insurance vs Investments.
· Insurance is basically a risk product. It provides a payout of a certain sum of money in the event of a certain event occurring. However the risk is that we are uncertain when that event will occur and in exchange you pay premiums to have that risk covered. Examples of the risks are Illness, disability and death. Examples of products are funeral, health, disability cover and life cover policies.
· Investments are basically savings into financial assets. This is money you are putting aside to grow into a certain lump sum for a future goal. Examples are capital to start a business, money to pay for education fees for your children, money to earn income in retirement.
So most of these products can be obtained under the same financial institutions such as Insurance companies and therefore over time people tend to forget whether the products they acquired in the past are taking care of their insurance needs or investment needs. For this reason, it is important to start compartmentalising the products into these categories the first opportunity you get when you encounter an agent or when you receive your policy documents.
The biggest benefit of doing this is that you will not need to carry on protecting a risk that is no longer there. Overtime some of these risks fall off. For example, you may be having too many funeral policies whereas you could use one, or if you have built up enough savings may not need a funeral policy. So better get to your desk and start checking and if you already have this done well done for being a step ahead.