Deciding between buying insurance and investing isn’t an either/or question. Both serve different purposes. Here’s a clear look at what each does and how to choose what’s right for you.
What Insurance Does
Life insurance protects the people who rely on your earnings. If you die, a life policy gives your family money to cover bills, mortgage, and daily living costs. Different types exist — term (temporary, lower cost) and permanent (lifelong, with cash value). Use insurance first to cover big risks that would otherwise hurt your family.
What Investing Does
Investing grows your money over time. Stocks, bonds, and funds aim to build wealth for goals like retirement, college, or a house. Investments can lose value sometimes, but over long stretches, they generally offer higher returns than cash sitting in a bank. If your goal is to grow money and you have time, investing is the tool for that.
Why Some People Confuse the Two
Permanent life policies (like whole or universal life) include a cash-value feature. That makes them look like an investment. But these policies are usually more expensive and often earn less than standard investments when you compare returns after fees. For many people, they’re more about guarantees and protection than growth.
A Common Practical Approach
A common and practical strategy is “buy term and invest the difference.” That means buying affordable term life insurance to protect your family, then investing the money you saved, versus buying costly permanent coverage. This usually offers better growth potential while keeping protection in place.
How to Decide — Simple Checklist
- Do you have dependents who rely on your income? Prioritize life insurance.
- Do you have long-term goals (retirement, wealth building)? Prioritize investing.
- For most people, a mix of both—enough insurance plus steady investing—works best.
Final Note
Everyone’s situation is different. For a plan that fits your family, debts, and goals, consider talking to a CFP professional or a licensed advisor who can look at your whole picture.