This might sound strange but it’s the truth. Both insurance and investment cannot replace each other in most people’s portfolio. Insurance might not make much sense for ultra-rich people. But for most others, it should be an integral part of their portfolios.
Even experts suggest that one should balance investments and insurance and never choose one over the other. But still, many people consider the money paid as insurance premium a total waste as there are no survival benefits or the returns are very less, compared to pure investment products. This might seem logical at the face of it, but its not. Lets see how:
Suppose a young person decides not to buy insurance and instead, keep his money in pure investment products. Since he has a long time ahead of him to invest and build a corpus, he dismissed the insurance option. After few years, this young person would have dependents. He would also have saved up some money as he had been investing for past few years. But unfortunately, the person in discussion losses his life in an accident. He leaves behind a family that has no other source of income but only his savings. Now the money he saved might just last for few years. But what about later? How will his family survive?
Had this person bought a cheap term plan, the family would have received a large some of money as death benefit. This amount would have been enough to take care of all recurring and one-time financial needs of the family.
Insurance might still be avoided when one has already saved enough money for family’s future needs and cleared all outstanding debts. But if that is not the case, then insurance ought to be bought. So make sure that you really have a lot of money saved up, if you are planning to completely exclude insurance from your life.