When you buy an insurance policy, what you want to get out of this is some form of guarantee that should anything happen to you, there could be some form of funds available for your family members. As such, insurance is sometimes not regarded to be a form of investment.
How is Insurance an investment?
Investment involves putting aside funds for a certain period of time and then enjoying its profits after that. This is where the similarity is. When you buy an insurance policy, you are committing to pay for the policy for a certain period of time with which you will then be able to withdraw the total amount after the policy matures.
In most cases, the final amount that you can withdraw after maturity is not much. This is because it is deemed that you have paid for the insurance over the years. However, there are many insurance policies that will provide good amounts to attract you to commit.
Types of insurance
The most common types of insurance you will come across is life insurance. This is usually very long-term. How it works is that you will commit to a policy that stretch after retirement usually up to 70 years old or more. Only when it matures, you can withdraw the amount agreed.
Medical insurance is another common policy. When you buy a medical insurance, the premium is somewhat higher than other types. This is to ensure that you could pay any medical bills should you need such services. Medical insurance come with hospitalization stays, payment for medication and other related services.
The list of diseases that fall under the list of claimable items will grow each year. If you did not make any claims throughout the tenure of the policy, you could withdraw the amount once it matures or keep it for old age where you might not need to pay the policy any further.
How it works?
Insurance companies mainly uses the amount collected to invest in other engines. It functions very much like how a bank works. The more customers they have, the more funds will be made available to the insurance company.
The pool of funds will then be channelled into investments. This is where you might sometimes be informed about where your funds are being used for. Some policies will have higher returns on certain years as they could be based on the mutual fund concept known as hybrids.
