Investment versus Insurance

In college days, I used to take extra pocket money from my mom as in this case my dad was very strict giving money except for essential expenditures.

Generally, I think, mothers play a bigger role in providing extra pocket money to their children during their school or college days.

It would be wrong if I say my dad did not give me extra money.  Actually, he used to give pocket money but it was not enough for me to cover all my expenses, so I used to approach my mom for extra cash to live my college life fully.  She never refused to give that extra money in spite of knowing that I had the money from dad.  She used to give some changes ranging from Rs 200 to Rs 500 depending upon her mood.

Sometimes I had to coax her into giving me that extra pocket money.  She used to tell me, “I DO NOT HAVE A TREE THAT GROWS MONEY.”

She was right.  The money cannot grow in the tree, no matter what.

To grow your money, first of all, you need to have a good source of income and investment where you can generate your regular income whether actively or passively.

Unfortunately, when it comes for investment, we become numb and do not know what exactly this means.  We end up mixing everything.

Also, it is not taught in our schools or colleges about the knowledge of investment and saving. Most of the people in India still do not know how our banking system works.  They do not know how to distinguish the financial products among saving, investment, and insurance.

Here, I would like to differentiate between investment and insurance to get the basic knowledge of the products.

Yes, there are a number of topics, articles, and books published to teach saving, investment, and insurance in the world.

But somehow I felt people are still lacking the knowledge to know the difference between investment and insurance where we always misplace their position and confuse which is the better option to subscribe.



An asset or property where you will have complete ownership with the goal of generating income.  The basics of them are saving accounts, buying an apartment or house, bonds, stock & mutual funds, you name it.

Saving bank accounts or similar type of investments are all meant for a short-term period.  For some reason, it is good as they pay you interest and insure against losses.

But at the other end, it has a big disadvantage, as they are for short-term investment and do not keep up with inflation.

Buying a house or apartment is considered one of the most profitable investment one can make, if it is for long-term investment, sustaining a fair amount of protection against inflation.

The other basic investment is the bond market, also debt or credit market. It is like you are the lender of the loan that you are giving to the issuer (government, corporate, any institutions, etc.) over a fixed period of time and the bond itself is the proof of the agreement between you (lender) and the issuer.

The characteristics of the bond are the same as the saving accounts: Both earn interest.

In the bond market, you will get paid in 5, 10, or 20 years, but in saving accounts, the period varies from a few months to a couple of years.  In the bond, you will be paid higher interest than savings accounts or similar only for keeping up with the inflation.   

The rule of thumb in investment is to earn extra money with inflation protection and this can be done only through the stock and mutual funds. This can provide good returns if you invest for a long period of time, I say more than 10 years.

Investing in these products does not mean you will get a good return with the guarantee.  No never. They are all subject to market risk.  You need to do proper homework before putting your hard earned money in these investments.

Please note none of the investment products mentioned here are inflation protected.

The stock market has enough potential to beat inflation.  To earn a higher return in stock or mutual fund, one needs to have perfect discipline and plan with a clear future goal.  Begin investing as early as possible to get maximum gains on your investment.

In old Chinese proverb, it is said, “The best time to plant a tree was 20 years ago.  The second best time is now.”

I mentioned inflation often because this is the main villain in an investment where your hard earned money could be eroded in a single financial year.

The simple meaning of Inflation is “the price of things is going up at the same time the buying power of currency goes down.”




In the previous article, I have mentioned its meaning as “cover of risk.”  Here I am going in detail what cover of risk means along with its usage and why we should not mix up investment at any cost.

Before explaining in detail, let me tell you a story about my school friend, and the story goes as follows:

The other day, I received a call from my friend.  He is a teacher by profession in Assam.  My native state.  Since we never get time to have a long conversation. This time we had a chance and talked about 1 hour of different topics from our school days to the present day.

In the midst of conversation, I just inquired how he is managing his personal finance in terms of investment and retirement.

He told me in one sentence “I invest all of my saving money in different life insurance plans.”

I cross checked and found he has about 5 Life Insurance plans and policies from different insurance companies for a period of more than 10 years.

Here I would like to mention that my dear friend does not know the difference between investment and insurance and ended up putting all his saved money in insurance plans.

Having said that, it does not mean that I do not like insurance.  It is one of the best tools of risk-management policy that we have today.  Insurance protects you from any loss, damage, illness, or even death.

And also, there are life insurance policies that have options to offer investments. This type of insurance is called ULIP (Unit Linked Insurance Plan).  This has dual benefits, insurance as well as investment.  This can give you great returns only when you invest for a longer period of time.

Apart from ULIPs, in India, we have many other insurance plans and policies, health insurance, life insurance, term insurance, general insurance, you name it.

Term Insurance Plan is said to be the purest insurance plan and is the least expensive compared to other plans. It ensures the financial security of the dependants in case of the untimely death of the insured person.

Life Insurance is the same as term insurance.  Here, a sum assured is guaranteed as per the terms of the policy as long as the premiums are paid regularly and policy is in force.

Can life insurance plans beat inflation?  The answer is NO.  All the plans are made for fixed-cover and tenure.

Now a day, it is very difficult to have a good facility and treatment for common people in the hospital because of rising medical bills in every healthcare facility in the country.

Unfortunately, if you have a heart problem and the doctor says to undergo a heart transplant and the cost of it, you may faint then and there as soon as you hear the cost of it.

A cost of a heart transplant in India is approximately 10-20 lakh rupees.

How will you manage that amount? The only respite from it is to have a good health insurance plan to cover all of your medical bills and treatment costs.

Health Insurance helps you to protect financially when you fall sick and need to go for any surgery or treatment.  Actually, this plan is not inflation protected as this has also fixed-cover and tenure.

Next, we have a general insurance policy which is used to protect car, bike, house from any burglary, theft, natural calamities, etc.

All the above-mentioned insurance policies have one common goal and that is financial protection to your dependent in the event of loss, damage, or even death.  So for me, it is not good to think of it as an investment plan and putting all eggs in a basket.  Distribute your money in different channels to prosper.

After the conversation with my dear friend, surprisingly one thing came to my mind is the education system that we have today which we never concern itself about the knowledge of personal finance in school and college syllabus.

To achieve financial freedom, we must have the knowledge along with good discipline and planning to manage our personal finance in our life.


According to you, which is the best investment option to subscribe? Please comment your opinion below.

Disclaimer:  I am not a financial adviser and expert.  The above-given views are not intended for any kind of advice.  It is solely the purpose of my individual opinion about the subject that I am interested in.

My name is Tom Basnet The is purely about my interest in blog writing. If you like my blogs, please comment and share. Thanks, Tom


  • Manas Gurung

    Your views are being liked.
    Inclusion of personal financial planning in the early grade of school curriculum is very much essential.It nurtures the young brain and helps to attain the peak of successful financial goals.
    The administration must consider it as Burning issue and take a necessary action to forward it.

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