By Ephraim Ofori NUMOSUOR
Insurance has long been promoted as a safety net—protection against unforeseen risks such as death, disability, illness, or loss of property. However, in recent decades, another narrative has gained ground: that insurance can also serve as an investment tool.
This claim has sparked debates among financial planners, insurers, and ordinary policyholders. Is insurance truly an effective vehicle for building wealth, or is it a myth born out of clever marketing?
At its core, insurance is designed to provide financial security. Life insurance, health insurance, property insurance, and other forms of coverage ensure that in times of crisis, individuals or families are not left financially stranded. Yet, certain types of policies, particularly whole life insurance, endowment plans, and unit-linked insurance plans (ULIPs), are structured to combine protection with investment features. These products often promise not only a death benefit but also a maturity value or a cash value that grows over time.
Advocates of insurance as an investment tool argue that such hybrid products offer a “two-in-one” advantage. A portion of the premiums goes toward risk coverage, while the rest is invested in instruments such as bonds, equities, or money market funds.
Over time, policyholders can accumulate wealth and sometimes even borrow against their policy’s cash value. For many, this appears to be a disciplined way of saving and investing, especially for those who may struggle with consistent savings habits.
However, critics caution that the “investment” side of insurance is often overrated. Compared to direct investments in stocks, mutual funds, or real estate, insurance-linked investments usually yield lower returns due to high management fees, administrative costs, and the insurance component itself.
In fact, financial advisors often recommend buying pure term insurance for risk coverage and channeling extra funds into higher-yield investments separately. This strategy, commonly referred to as “buy term and invest the difference,” tends to produce better long-term wealth outcomes.
Another factor is liquidity. Unlike other investment options, insurance contracts often lock funds for extended periods, with significant penalties for early withdrawal. This reduces flexibility for policyholders who may need access to cash in emergencies or wish to pursue other investment opportunities.
That said, insurance with investment features can still be valuable under certain circumstances. For individuals with low risk tolerance, those who prioritize guaranteed returns, or people seeking long-term financial discipline, such products may provide peace of mind. Additionally, in many jurisdictions, insurance policies come with tax benefits on premiums paid and payouts received, making them attractive from a tax planning perspective.
The truth, therefore, lies somewhere in between. Insurance is primarily a risk management tool, not an investment vehicle. While some products provide modest investment benefits, they should not be mistaken for robust wealth-creation instruments. A well-balanced financial plan requires distinguishing between protection and investment, ensuring that insurance is used for its true purpose while other avenues are explored for long-term growth.
In conclusion, insurance as an investment tool is neither a complete myth nor an absolute truth. It is a hybrid concept that can work for certain individuals depending on their financial goals, risk appetite, and discipline. However, for those seeking maximum wealth creation, insurance should serve as the foundation of protection—while true investments drive financial growth.
>>>the writer is a Financial Economist, Research & Policy Analyst. He can be reached via 0248803710 and or [email protected]
