In accordance with economic developments, it is not surprising that there are various financial products that aim to provide security guarantees from financial risks in the future. Like the two products that are currently popular and very popular are insurance and investment. Then whether these two insurance vs investment products have differences and are of equal importance?
The two financial products are considered equally important and must be owned by everyone, because they are seen from the benefits that are very profitable for their users. The point is that the two financial products have different functions and are of very important value, so here are the basic differences between insurance and investment products, let’s look at the reviews!
The Basic Difference Between Insurance vs Investment
So that you are clearer in knowing the basic differences between the two financial products that play a very important role, let’s see the full review below!
Definition of Insurance vs Investment
When viewed from the definition of the two financial products, they are very different in providing benefits, but they are both very good at providing benefits for life in the future. Because in proper future planning it cannot be separated from a good financial plan in order to achieve financial stability or freedom.
In general, investment products are often used to hold the inflation rate temporarily if it is an insurance product that can minimize unexpected risks in the future.
As well as investment which is a financial product of investment which is usually in the form of shares in a company or a project with the hope that later it will make a profit. By providing a function in order to meet future needs so that one’s purchasing power will not be exhausted or drained by inflation.
As for financial products, insurance is an activity that is carried out by paying a certain amount of money to a company that provides insurance to protect themselves and their families from various financial risks. Later you will get in the form of financial protection when you experience a risky and unexpected or unpredictable event.
4 Fundamental Differences Between Insurance vs Investment
After knowing the definition between the two financial products, now proceed with a detailed explanation of the general differences between insurance and investment, along with the explanation.
Financial Goals
The general difference between the two financial products can be seen from the objectives of each product which are very different in achieving financial goals. For insurance products with the main purpose as protection or protection that is carried out when something bad or unexpected happens.
Then later will deposit or save a fund every month to the insurance and one day it will be used or liquid when a risk occurs suddenly. Among some of the risks in this insurance are the occurrence of accidents, deaths, critical illnesses, and various health treatments that cannot be predicted when they occur.
It is different with investment products when viewed from the financial side, where investment is the development of assets or funds invested with risk. This means that if you choose this financial product, you must be prepared to bear the various risks that occur, such as the risk of failure or loss caused by the investment.
However, when an asset or fund that you invest can grow, it can be used to achieve the expected financial goals. From most examples, someone will invest to be financially free in the future, such as building a house, getting married, paying for education or even being able to enjoy it anytime without having to wait for risk factors.
Risk Level
In addition to having different goals, of course, the two financial products also have different levels of risk. For insurance products which are generally assumed to be future savings, they certainly have certain and guaranteed risks. Even later, the funds that you insure each month cannot be reduced or run out, it will increase according to the passage of time, because it is almost the same as savings.
However, what you need to control is the risk factors that occur and cannot be predicted, therefore you must manage your investment funds and be able to control the risk factors so that one day if financial conditions occur, you will not suffer. In addition, you must be good at controlling finances so that when you buy insurance premiums or pay a certain amount of money to the insurance every month it is not too much.
Meanwhile for investment products, in fact, they have an uncertain level of risk, which is caused by a fund or capital that you invest also increases and decreases according to capital market conditions and it is called fluctuating. The cause of the fluctuating or ups and downs of financial conditions in the investment is caused by market conditions which play an important role in investment.
In addition, you also cannot determine or ensure the profits or returns that are obtained are stable or can even increase, the reason is because the returns are based on the reference interest rate every day. That’s why you can’t say for sure, because you could get a high return today and a low return tomorrow.
Results obtained
In general, most people will see the results that will be obtained before choosing between insurance vs investment, where the two financial products will get different results. So the difference can be seen if in insurance products you will pay a certain amount of money every month and will get results in the form of self-protection.
For example, if you choose the type of health insurance, when you are seriously ill or have to be hospitalized, the cost of treatment will be borne by the insurance company. Meanwhile, if you choose the type of life insurance, the results obtained are in the form of sum assured that can be used for your family when you die.
It’s different if you choose an investment, then the results obtained later are an advantage in the form of assets that can be disbursed in cash, but keep in mind that the results obtained will adjust to the conditions of the capital market in investing.
Flexibility of Funds
After knowing the difference in the results obtained between insurance and investment which also has a difference in the flexibility of the funds you will get later. In this case, it can be said that between investment and insurance, the one with more flexibility in funds is the investment product.
This is because the funds generated from investments are more flexible and can be disbursed at any time according to needs without waiting for risks that occur later. It is different with insurance products where the funds or results obtained are not flexible, meaning that you cannot withdraw at any time because you are waiting for a predetermined risk.
So that’s a review of the difference between insurance vs investment that you must know, hopefully it’s useful and happy reading.
