Sunday, August 31, 2014

If something is 10% Insurance and 90% Investment, why do we call it Insurance?

Say "Insurance" one more time. I dare you. I double dare you.

You know what I don't understand? Why do people misrepresent investments as "insurance"? Many people now unknowingly refer to an investment as insurance because of all the butchering of the meaning that has been going around. This has to stop.

Let's be crystal clear about this people: Insurance is NOT an investment.

What is insurance and what is an investment? Let's use Investopedia's definition for it:

Some good and pure forms of insurance that have not had their meanings butchered and masqueraded as "investments" are: Travel insurance, Car insurance and Fire insurance.

Have you ever heard anyone in your life tell you that, last week they met their insurance agent and "invested" in some travel insurance? No right. The word to be correctly used with insurance is "protection". You protect yourself using insurance. You invest using investments. You can't "invest" in insurance.

So why are there so many "insurances" that you can invest in? Well, because they aren't really insurance. Not mostly, anyway. They are investments that are cross-dressed and sprinkled with some insurance so that they can be legitimately referred to as insurance, so you feel better at night sleeping with a potentially dangerous beast.

The problem isn't really with those kind of insurances, nor is it with investments. Like I said, no one goes around saying that they have "invested" in car and fire insurance. Likewise, no one goes around saying they have "insured" themselves by buying some stocks or bonds. The problem comes when there is this grey-area of Investment-Linked Policies and endowment insurances.

Investment-Linked Insurance Policies (ILPs), going by MoneySense's definition is:

So, the line in red is what I would like to draw your attention to.
"... if you are more concerned about getting life insurance... you may need to consider other life insurance products."
Too many people tout ILPs as insurance, which also just so happens to have investments returns. This is intentional misrepresentation because people generally have the notion that anything that is called insurance is "safe" while anything that is called investment is "risky". By referring to ILPs as insurance, it creates this false sense of security that ILPs are low risk products. Hence, people want to invest in this "insurance".

ILPs are more investment than insurance. If an ILP is 10% insurance and 90% investment, what should you call it? Well apparently, if you are in Singapore, you call it insurance. If something is 10% not-bullshit and 90% bullshit, what should you call it? I say bullshit.

Let's be real about what ILPs really are. ILPs are expensive investment tools which just so happens to have an insurance portion to it. You don't invest in this "insurance". You are investing in an expensive investment vehicle (the high costs eats into investment returns) that has an insurance portion to it. It's like the free soup that comes with your chicken rice. No one buys the chicken rice for the soup.

If ILPs are going to be seen, talked and touted as mainly insurance that just happen to be investment-linked, then maybe we should all go to hawker centres and order chicken broth soup that just happens to come with a plate of chicken rice. Where's the logic, please help me.

Now, let me talk about Endowment Insurance. I do not like the title of it at all, not one bit. Even though the MoneySense definition of it recognizes that it is more investment than insurance, they still call it endowment insurance. I find it very misleading.

Once again, they admit that a fraction of the premium paid will go towards insurance protection, while the remainder is invested. Also, if you have enough insurance, they say that you shouldn't be getting this product, because it is just an expensive way to invest! ("you could be paying for something that you don't really need" refers to the insurance portion of the endowment plan)

So, why is MoneySense classifying expensive investment products with a small insurance feature as insurance? Do they really think that these products which are mostly investments should be called insurance?

What is strange is that none of the insurers are unclear about this distinction of what is an investment and what is an insurance. All their ILPs and Endowments are clearly listed under "Savings & Investments", NOT under "Protection". Same for the banks. They all call it "Savings with Insurance".

Don't get me wrong. All these products have their uses. I just think that if something is mostly investments, we ought to call it an investment, rather than insurance. Or at the very least, an investment with some insurance. But definitely not only insurance.

/rant off


  1. We Provide Best Packers And Movers Jaipur List for Get Free Best Quotes, Compare Charges,
    Save Money And Time,Household Shifting Services @ Packers And Movers Jaipur

  2. It is very important to get your goods insurance while you are relocating. While several vendors provide insurance services as part of their services, some of them don’t. In due course, you will be able to contact us for your goods insurance requirements.
    Packers and Movers in Bangalore
    Packers and Movers in Pune
    Packers and Movers in Mumbai
    Packers and Movers in Hyderabad
    Packers and Movers in Delhi
    packers and movers in panchkula
    Packers and Movers in Kolkata
    Packers and Movers in Chennai

  3. Physiotherapy is believed to lead to simple movement of muscles and joints to alleviate pain or in case of issue in mobility, however, medicos say that it has numerous other miraculous advantages like the improvement of respiratory organ functions, speedy tissue healing and is useful in healing burns additionally. Studies say that physiotherapy does not solely impact body’s function, however additionally improves the understanding of integration between systems.
    massage calgary nw
    top physiotherapists in calgary

  4. One of the primary tools in traditional Chinese medicine, acupuncture is a safe and tested approach to holistic healing used to relieve pain, prevent disease, and restore balance in the body. Acupuncture involves the insertion of fine, sterile needles into specific locations of the body to elicit a therapeutic response. While some may be quick to assume that acupuncture is painful, many patients report a feeling of deep relaxation and increased energy both during and following treatment.
    massage in nw calgary
    best physio in calgary

    1. India’s most personalized and prompt in communication, inbound tour operator, Surya Tours & Travels was established with the motive of handling tourists from all over the South india. We are a Govt of india recognized tour operators. We take liability only for emails and phone calls from the above Mail-id and phone Numbers. We are not responsible for any unauthorised mail usage and phone calls.
      best tours agents in madurai
      best kochi travel operators
      chennai travels and tours
      best travel operator in bangalore

  5. The objective of Blooming Lotus(Day Care Centre) is to produce a child who is beginning to feel confident about self, enjoys creative tasks, can take simple decisions easily, enjoy the process of learning and achieve wholeness.
    preschool in anna nagar
    Kindergarten School Anna Nagar
    Best Pre School in Anna Nagar
    Day Care Centre in Anna Nagar
    Nursery school in Chennai

  6. 24/7 Luxury london airport transfer services By UK Airport Service. Airport transfer from heathrow airport, Gatwick, Luton, Stansted, Southend to London at cheap fare, Call us for 24/7 Luxury london airport transfer services.
    UK Airport Service
    24/7 london airport transfer services
    luxury airport transfer services
    Airport transfer from heathrow airport to london
    London Airport Transfer Services

  7. The mission of Nishtha is to promote that knowledge base along with ethics and good conduct in professionals, educate and orient them in the field of project management and develop skills in them that would then bring immense value in Organizations for management of their projects in a superior and successful manner.
    project management training in chennai
    ms project training in chennai
    project management courses online
    pmp classes in chennai


Observe the house rules.