What are the pros and cons of purchasing insurance as an investment?

Like any investment a person has to be very much vigilant.But the pros that you can say are:

a) Tax Benefit

b) Life cover

c) sum assured to some extent

d) Critical Illness Benefit if the proposer has opted for it. This is not available if investment is made elsewhere.

e) Double accident benefit if the proposer has opted for it. This is not available if investment is made elsewhere.

There can be many more. Now the cons:

a) Return on investment is limited.

b) There are no tax benefit.

c) No Life cover.

d) Investment is guided purely by market.

e) There can be huge losses also.

It also depends on the Profiatability of an Insurance Company whether it is able to povide a reasonable return in the Insurance Policy whether a person should treat Insurance as an Investment or not. I would certainly like all financial instruments to be treated as Investments

I would also suggest not to mix insurance with investment.

In your insurance proposal, remove the portion of the premium allotted to the term policy. Now, taking the remaining part of the payable premium, compare the promised yield in the insurance plan to any pure investment instrument. If the investment instrument yields better returns, your answer is clear - get the term insurance and invest the balance of the proposed premium into the investment product.

Because lack of knowledge here would only result in loss.....

Insurance can be considered as investment if a person is investing in products like ULIP. All insurance policies dont serve as investment.

ULIPs are market-linked investment plans with a life cover thrown in, but the cover is generally lower than in a traditional life insurance plan. In a ULIP, the investment is in a mix of instruments / securities and returns are completely market-linked. Besides, only a small part of the premium goes towards risk cover for the life insured.

As they are market linked the person buying it should be aware of how it works or it will be a costly deal because ULIP products work on the share market. And you may loose drastically due to lack of knowledge..

According to me the purpose of life insurance is to provide security to the beneficiaries of the person who is insured. To use life insurance as an investment means that, to some extent, you might be putting that death benefit, that value to the beneficiaries, at risk. I really don't see life insurance as an investment. You should probably keep the two separate. There's no reason to think of life insurance as an investment.

It's really an insurance policy against premature death.

In that case -- Pros for the living--
1. the cost of insurance can be paid with tax free growth within the policy. Term insurance is almost always after tax premium payments.
2. no capital gains or income taxes while growth remains in the policy.
3. the ability to borrow against your assets in the policy without the demand to pay it back. This is mainly a non taxable event.
4. the assets are highly protected (in most states) from personal and professional liability claims from lawsuits and such

Cons for an individual ---
1. if the policy does not offer a net-zero cost loan provision. this would hurt the tax-free loan concept tremendously.
2. if the individual is rated poorly, the cost of insurance cost could be too big a portion of the return of the cash value.
3. if the individual invests poorly within the subaccounts available (assuming we are referring to a variable policy).
4. the insurance company raises its rate in the insured's state. This could lead to the cost of insurance weighing down the return of the cash value.
the individual does not maximum fund the policy according to IRS guidelines. This can lead to the cash value not reaching the critical mass needed in order to make the policy viable over the long term