Have you considered insurance as an asset class?

Over the past 8 years, I have preached the message of multiple streams of income within my circle of influence. Like many financial advisers, I agree that earning multiple streams of income is the only mean for people in paid employment to achieve financial freedom.

People in paid employment earn salary income which represents their first stream of income; they will be working towards their financial independence if they invest some of their salaries in building other income streams.

The rule here is simple, “don’t eat all your eggs.” set some portion of your salary aside as periodic investments in money market instruments. Money market instruments include tenor deposits in banks, treasury bills, and Bonds. These instruments pay regular interests or coupons that could become a second stream of income.

“Never ignore the capital market.” As scary as an investment in shares or quoted equities might appear, Investment analysts have argued that equity investments outperform fixed income or money market investments over the long term.

Investment in shares of well-managed companies may yield regular dividend and capital appreciation that may become the third stream of income to people in paid employment.

Real Estate and Entrepreneurship are the fourth and fifth streams of income I have shared details with friends and families. But the focus of this write-up is not about the five streams briefly summarised above; I believe Nairametrics and other analysts have written many good articles on these five streams.

My focus today is to introduce Insurance as an asset class or an investment that can be purchased and combined with other assets classes or income streams mentioned above, to provide downside risk protection or a lifetime income opportunity.

Until I joined the Insurance industry some 18months ago, I have shared a subtle agreement with many outsiders who considered insurance as a waste of money or a necessary evil at best; these people would not buy an insurance product, except it is made compulsory by law!

But the reality is that insurance is a risk transfer mechanism that ensures adequate financial compensation is paid to the insured, who has suffered an insured loss, caused by events beyond the control of the insured party.

People in paid employment who desire financial freedom must consider personal insurance which includes motor insurance, household insurance, travel insurance, private medical and personal accident insurance (where the employer does not provide cover) among several other beneficial insurance policies.

Having some of these policies protect the wealth of the insured, fire damage to property or automobile could set the owner backwards by several millions of naira if an insurance cover is not in place.

A friend who works in the oil industry once took ill while on holiday abroad, unfortunately, he didn’t buy a travel insurance policy that covers medical treatment, he spent half a million naira in credit card debt, where a planpriced at not more than five thousand nairawould have provided sufficient cover!

Life assurance policiesare promisingproducts I will recommend to anyone seeking future financial protection. Nigerian insurance companies offer four main types of life assurance policies; term life, whole life, endowment life and annuity.

The primary benefit of these insurance products is to provide a predictable cashflow following the occurrence of an insured event.

Another friend bought a funeral policy on his aged father, “unfortunately” he lost his father some months afterwards, but the insurance company paid the insured sum, which was sufficient to give dad a befitting outing. Isn’t that smart investing?

Article by Afolabi Lawal, who works in the insurance industry.