The best way to preserve the economic values of health and life is insurance. After all, you can accumulate wealth only if you can take proper care of your health. For that, health insurance is necessary. Life insurance promises you to pay your dependants Human Life Value, in case of death.
Long-term insurance
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Wealth can be created not just by investing in equities and real estate. It can also be created by buying life insurance policies, bonds and even gold. In fact, young professionals must buy life insurance according to their future financial needs. While life insurance takes care of financial needs of the dependants in case of premature deaths of earning members of the families, annuities can give a long-term guaranteed return on investments to the policyholders when their active working life comes to an end.
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Moreover, liabilities do not come to an end at the age of 60 or even 65. This is the reason customers of mature insurance markets buy more whole life policies which give much higher returns than endowment policies and make cash values available at all contingencies.
Preserving wealth
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Preserving wealth is a life skill which one needs to learn early in life. If one learns how to preserve wealth to meet the demands of the future, he will remain prudent even while investing the money in risky assets. Financial experts advise investors to study alpha, beta, R-Squared ratio, Sharpe Ratio and many more critical ratios before investing. How many people do that even when data is available in the public domain?
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But a person who has the preservation mindset will collect data to invest as sensibly as possible. It has been seen that preservation minded individuals grow a sizable corpus albeit less dramatically than those who did that by buying risky assets.
Many young people buy real estate, mostly apartments in gated communities, in the hope of getting a high return in a few years, when the property prices shoot up. Now, if they self-occupy the apartment, they are preserving their assets. On the other hand, if they don’t use the flats and link them to some investment goals to be achieved in say 10 years, it may be the fact that at that specific time,the realty market may pass through a dull phase and offer very low returns.
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Data for the last 30 years on real estate show that this asset class has given a return that is not higher than bank fixed deposits. Lastly, it is very difficult to monitor the movements of real estate prices on a regular basis, the way one can for mutual funds. We can close our analysis by saying that a preservation mindset helps one reach the important goals of life with consummate ease and peace of mind.
FOR TOMORROW
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* Preservation minded individuals grow a sizable corpus, albeit less dramatically than those who do that by buying risky assets
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* Customers in mature markets buy more whole life insurance policies which give much higher returns than endowment policies and also have sizeable cash values
The writer is an insurance industry analyst
