Insurance as an Investment

Although some insurance products have an investment component, such as variable life policies and some annuities, we don't suggest you consider insurance as one of your options for investment vehicles that make money. But if you really stop to ponder the role of insurance, you'll quickly realize that it's theoretically one of the most important purchases you make because it protects your other investments. When you buy health insurance or homeowner's insurance, you are making an investment toward realizing your goals.

For example, if you did not purchase health insurance and found that you had to undergo major surgery, you would be responsible for the hospital and doctor bills on your own. Most of us faced with this situation would have to tap into our investments (our home's equity, sell some bonds and mutual funds) and, in a worst-case scenario, could end up unable to meet our financial obligations and lose our precious assets. Insurance is a type of investment that anticipates adverse events and mitigates or even eliminates the potential consequences, which can range from inconvenient to financial ruin.

The insurance section of this guide discusses in depth the various types of insurance available.

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