HOW INSURANCE CAN MISLEAD YOU INTO EXPECTING FINANCIAL RETURNS YOU MAY NEVER GET

How Insurance Can Mislead You Into Expecting Financial Returns You May Never Get

You can watch it in the YouTube video below to get the info being shared in this blog:

Is Insurance an Investment? The Truth You Need to Know

Insurance is a crucial financial tool, but is it an investment? The short answer—No, it’s not! However, many people believe otherwise due to how some policies are marketed. In this article, we’ll break down why insurance is not an investment, examine different insurance plans, and discuss whether Investment-Linked Plans (ILPs) are truly beneficial.

Understanding Insurance: Protection, Not Profit

Insurance is designed to manage risk, not to grow wealth. When you purchase an insurance policy, you pay a premium, and in return, the insurance company promises financial coverage in case of an accident, illness, or death.

Insurance is meant to serve as a financial safety net. If you don’t make a claim, that’s actually a good thing—it means nothing bad happened. However, if you do, your policy helps reduce financial burdens during difficult times.

Why Insurance is NOT an Investment

Many people feel that if they’re paying for insurance, they should get something back. But here’s the reality:

- Investments generate returns over time.

- Insurance is an expense that protects you against financial risks.

For example:

- If you buy health insurance (or medical card), it won’t make you money—it simply covers your medical expenses.

- If you buy life insurance, the payout goes to your family, not to you.

When people confuse insurance with investment, they often overpay for the wrong type of policy and miss out on better investment opportunities.

What About Endowment and Education Plans?

Endowment and education plans are often marketed as savings plus insurance. You pay premiums, and after a set period, you get a lump sum payout. Sounds great, right? Not so fast!

Here’s the problem:

- The main reason people buy these plans is to surrender them later for a profit.

- Since there are returns, the insurance coverage is lower.

- Part of your premiums go toward insurance costs, which means the returns are lower than if you had invested directly.

In short, it’s the worst of both worlds—low insurance coverage and poor investment returns. Instead of these plans, many people may be better off investing in unit trusts or ETFs, which offer better returns and more flexibility.

Kindly watch the YouTube shorts below to know how Insurance and Investment related:

Investment-Linked Plans (ILPs): The ‘2-in-1’ Trap

Investment-Linked Plans combine insurance and investment. A portion of your premium pays for insurance, while the rest is invested. This sounds ideal, but there are serious downsides:

- High fees – You pay insurance charges, fund management fees, and policy charges.

- Rising costs – As you age, insurance costs increase, eating into your investment portion.

- Depleting investment value – Over time, your investments shrink as more money goes to cover insurance expenses.

- Additional payments required – You may have to top up your premiums or reduce coverage to keep your policy active.

So, is an ILP truly an investment? Not really! It’s a mix of insurance with rising costs that often make it a bad deal.

Whole Life and Critical Illness Plans: Why They Offer Returns

Unlike ILPs, whole life and critical illness insurance come with a guaranteed surrender value. This means that if no claims are made, you can get some money back.

Why?

- Guaranteed cash value – Over time, these policies accumulate savings.

- Bonuses & dividends – Some policies offer additional bonuses that increase the cash value.

- Fixed insurance cost – Unlike ILPs, where costs rise with age, whole life plans lock in lower premiums when purchased young.

However, the guaranteed cash value may not be a good investment return when you factor in inflation. Over time, purchasing power erodes, making the return less attractive.

Kindly watch the YouTube Shorts below about Inflation:

Why Are Investment-Linked Plans So Aggressively Marketed?

Despite their drawbacks, ILPs are widely promoted. Why?

- They start cheaper – Lower initial premiums make them seem more affordable.

- Flexible add-ons – Many ILPs allow multiple riders (additional benefits), making them seem like a ‘bundle deal’.

- High commissions – Insurance agents earn higher commissions from selling ILPs, driving aggressive marketing.

- Psychological appeal – People like the idea of ‘getting something back’ from their insurance.

While ILPs seem like an ‘all-in-one’ solution, the rising costs over time often make them a poor financial choice.

Why Do ILPs Appear Cheaper Than Whole Life Insurance?

At first glance, ILPs look more affordable. But here’s what’s happening:

1. Insurance costs rise over time – While starting premiums are low, they increase with age.

2. Investment portion subsidizes costs – In the early years, investment returns help cover insurance costs. But later, these returns are depleted.

3. Hidden policy fees – ILPs come with fund management fees, policy charges, and insurance costs, reducing overall returns.

So while ILPs may seem cost-effective at first, they get more expensive over time.

What’s the Better Option?

The best insurance choice depends on your goals:

- If you want pure protection – Term life insurance and standalone medical cards offer affordable coverage without unnecessary investment layers.

- If you want some guaranteed returns – Whole life or standalone critical illness plans provide security, but compare them with other savings options.

- If you want to grow wealth – Stick to stocks, unit trusts, ETFs, and other direct investments.

Mixing investment with insurance often leads to higher costs and lower returns. If you buy an ILP, treat it purely as insurance and not as an investment tool.

Conclusion: Keep Insurance and Investment Separate

Insurance is about risk management, not wealth-building. If your goal is to invest, explore real investment options. If your goal is to protect your finances, choose the right insurance coverage.

Have you ever been sold an insurance policy as an investment? Share your experience in the comments below!

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Rethna, AIA Life Planner @ Ipoh, Perak

Disclaimer:

The information shared in this blog is for educational and informational purposes only and should not be considered financial, investment, or insurance advice. While I strive to provide accurate and unbiased insights, the views expressed are based on my personal understanding and interpretation of the subject.  

I do not provide personalized financial recommendations. Visitors are encouraged to conduct their own research and consult with a qualified financial advisor or insurance professional before making any financial or insurance-related decisions.  

Any references to insurance policies, investment-linked plans, or financial products are for discussion purposes only and should not be taken as endorsements or rejections of any specific product or provider. The suitability of any financial product depends on individual circumstances, and what may be appropriate for one person may not be suitable for another.  

By reading this blog, you acknowledge that you are responsible for your own financial decisions and that I am not liable for any actions taken based on the information presented.