Sunday 8 September 2013

Distinguish Between Investing and Insurance

Viveros



Individuals who have some wealth and are not quite sure how to handle it would do well to take advice from a financial services consultant. There are many types of financial instruments in the market, each solving a different purpose. In some cases, individuals believe they are saving or planning for the future but in reality might not be doing so. That is why seasoned advisers like Eric James Viveros bring in all their experience to portray to an individual how to invest wisely and when to take a step back and reassess the finances.


There is a huge difference in investing and in paying premiums for an insurance policy. Then there is the question of how you are saving. In other words, a professional personal financial adviser can help you look at three different tiers. There are fixed deposits where you get a small interest but also the assurance that the cash is there for your time of need. Then there is the tier of investing in securities, mutual funds and other financial instruments. Although, you expect to make money out of these instruments, you can never be fully assured of what gains you are going to make.

It is important to use a component of your money to make more money. However, for higher gains, there is always an element of risk associated with it. A different tier is that of insurance, whether it is permanent life insurance or term life insurance that could be for 10 years or 20 years. The premiums could be fixed or could increase with time. They also depend on the risks and liabilities you face. They have a sum assured amount at maturity that would be handed over to you. But, in truth, they can neither be considered an investment nor as saving.

Insurance policies act as parachutes to deal with unforeseen events of life. For example, you may have a house loan that you can pay back in 20 years. In the worst case scenario of your death or if you lose your ability to earn, you wouldn’t want this liability to be transferred to your dependents. That is what insurance will help you achieve. Some policies do have a cash value where it is invested in money market funds to make more money. However, there is unpredictability of returns even for that component.

It is important to discuss your needs and your family’s needs with a financial consultant who can draw lines on how much insurance you need and what savings you ought to have. Too much insurance will mean very little saving by the time you reach policy maturity. Too many savings could still mean your money could be wiped out in one unforeseen event. The financial consultant will try to strike a balance between the two scenarios. There are annuities and depository receipts, collectibles and corporate bonds, mutual funds and municipal bonds along with a wide array of other instruments. Understanding each of them needs expert intervention and clarification.

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