Investment-Linked Life Insurance Versus Mutual Funds: Which is the Better Choice?

Managing your finances isn’t just about saving money. It’s also about protecting your future and making your money work for you. The two ways you can do this are through life insurance and mutual funds. Both serve distinct purposes, but they’re often misunderstood or confused with one another. 

Knowing the difference between investment-linked life insurance and mutual funds can help you make better decisions about where to allocate your hard-earned money. In this article, we’ll break down these two financial products so you can decide which one—or maybe even both—suits your financial goals.

Investment-Linked Life Insurance Vs Mutual Funds

What is the difference between investment-linked insurance and mutual funds? The best way to do this is to define each one.

Investment-Linked Life Insurance

Investment-Linked Life Insurance (also known as Variable Life insurance) is a type of life insurance policy that combines the benefits of traditional life insurance with the opportunity to invest in various funds, such as equity funds, balanced funds, and bond funds.

A portion of your premium is allocated to an investment fund, allowing you to participate in potential market gains. The earnings from the investment insurance are added to the death benefit your beneficiaries receive in the event of your death.

The different types of investment insurance plans are designed to provide risk protection. It allows policyholders to prepare for life’s uncertainties, such as sickness and disability, as well as certainties like inflation. The strong financial security it offers is why investment-linked insurance is a must for Filipinos who want to protect their family’s future.

Benefits of Life Insurance

• Financial Protection: Your family receives a lump sum upon your death, which can cover living expenses, mortgage payments, or children's education.
• Peace of Mind: Life insurance gives you peace of mind knowing that your loved ones will be taken care of in your absence.
• Tax Benefits: In the Philippines, life insurance proceeds are generally tax-free, providing your beneficiaries with the full amount of the payout.
• Flexibility: Some policies come with additional features such as riders for critical illness or disability.

Who is Investment-Linked Life Insurance For?

Investment-linked life insurance is ideal for those who want both protection and the potential for wealth accumulation. It’s a great option for Filipinos who have a long-term financial outlook and are willing to take on some level of risk in exchange for potentially higher returns. It’s also suitable for individuals who want to have more control over their investments while still ensuring that their family is financially secure.

Mutual Funds

Mutual funds are investment vehicles that pool money from multiple investors to purchase a variety of securities, such as stocks, bonds, or other investments.

The main difference between investment insurance and mutual funds is the lack of an insurance component. Nevertheless, mutual funds are a great way to safeguard your finances.

Mutual funds allow investors to grow their money through capital appreciation, dividends, or interest income depending on the type of fund they choose. These investments do not have an insurance component as life insurance does but are a great way to secure your finances.

By investing in mutual funds, you can benefit from diversification, professional management, and liquidity. You can maximize the potential of your assets, allowing their wealth to outpace inflation, thus helping you achieve financial stability.

Benefits of Mutual Funds

• Professional Management: A professional fund manager takes care of your investments, making informed decisions based on market conditions and research.
• Diversification: Your investment is spread across different assets, reducing the risk of significant loss.
• Affordability: Since mutual funds pool capital from different investors, you don’t need a large capital to start investing in mutual funds.
• Liquidity: Mutual funds are generally liquid, meaning you can redeem your shares easily if you need access to cash.

Who are Mutual Funds for?

Mutual funds are ideal for individuals who want to invest but don’t have the time, knowledge, or resources to manage their own portfolios. This type of investment is ideal for investors who are willing to take on some risk for the potential to grow their assets. Mutual funds have become more accessible in recent years, with many financial institutions offering a wide range of fund options for both beginners and experienced investors.

Which is Better Investment Insurance or Mutual Fund?

Both financial products are powerful tools for achieving financial freedom. Choosing between life insurance and mutual funds depends on your specific needs, financial objectives, and risk tolerance. Here are a few things to consider to figure out which one is more appropriate for you:

When Life Insurance is the Right Choice

• You have dependents: If you have a spouse, children, or aging parents who rely on your income, life insurance ensures they’ll be taken care of financially in case of an untimely death.
• You’re the primary breadwinner: If your family would struggle financially without your income, life insurance is a must.
• You want peace of mind: Investment insurance provides financial security through investments and insurance benefits for your loved ones.
• You have significant debts: Life insurance can help pay off outstanding debts like a mortgage or car loan, so your family isn’t burdened with financial liabilities.

When Mutual Funds Make Sense

• You’re aiming for long-term wealth growth: Mutual funds are great for those who want to grow their money over time, especially for long-term goals like retirement or education.
• You’re willing to take some risk: While mutual funds provide diversification, they are still subject to market fluctuations. If you can tolerate short-term ups and downs in exchange for potential long-term gains, mutual funds may be suitable for you.
• You want professional funds management: If you don’t have the time or expertise to manage your investments, mutual funds allow you to benefit from professional fund managers.

How are You Protecting Your Future?

Ultimately, both investment-linked life insurance and mutual funds play important roles in securing your financial future. The key difference lies in their primary purpose: life insurance focuses on protection, while mutual funds aim for wealth growth. Depending on where you are in life, you might find that one product better suits your needs than the other—or perhaps a combination of both is the ideal strategy.

Get in touch with InLife today to get guidance from one of our financial advisors about insurance in the Philippines or the best investment strategy for your goals.