Insurance has one purpose, and one purpose only.
Remembering that purpose will keep you from expensive insurance ‘solutions.’
The purpose of insurance is risk transfer.
For the rest of your life, insurance salespeople will try to sell you the idea that you can both increase your wealth and protect against risk at the same time.
Buying insurance transfers your personal risk to an insurance company – and should be used only that way.
Insurance does not increase your wealth and attempts to convince you otherwise end in expensive financial monstrosities.
Not a dragon, a chimera
Investment products have giant wings and sharp beaks, while insurance products have protective scales and armoured fins. The combination is not the cool dragon your insurance salesman wants you to envision, but a mythical chimera that will never fly – nor save your wealth.
Examples of monstrous chimeras include variable annuities, as well as life insurance billed as a savings vehicle with ‘accumulated policy value’ in it, which your agent will assure you that you can borrow against.
A straight annuity, an investment product designed by the insurance industry, is also a losing proposition for everyone, except the insurance company, of course.
But my insurance salesman tells me this is a great investment?
Yes, for him. He gets fat commissions.
It’s not a great investment for you.
So, in sum: Insurance is great for transferring risk away from you and onto a big company, but not great for anything resembling an investment.
NOW WATCH: Money & Markets videos
Business Insider Emails & Alerts
Site highlights each day to your inbox.