Every time I talk with friends about whether to buy insurance or make an investment, the conversation heats up quickly. Some say, “You need protection first before thinking about the future”; while others counter, “If you’re not making money, how can you afford protection?” So, here’s the question — in 2025, when market fluctuations are growing more intense, should you prioritize term life insurance or regular fund investments?
In reality, this isn’t a black-and-white decision.
1. Let’s Look at Returns: Regular Fund Investment vs Protection-Oriented Insurance
Let’s set aside the emotional aspect and compare the most practical numbers.
The average annualized return of regular fund investments, according to the latest 2025 Morningstar data on mainstream U.S. and European stock funds, ranges between 6.2% and 7.8%. Of course, different funds vary widely — for instance, tech-focused ETFs have delivered an average return of over 9% in the last five years.
On the other hand, term life insurance is a purely protective product, meaning there are no investment returns. Its biggest advantage lies in its low cost and high leverage. For example, a 30-year-old male paying $300 annually for term life insurance can get a coverage amount of $500,000.
So, if we focus purely on returns, regular fund investments clearly win.
However, let’s not forget, higher returns also come with higher volatility. Are you sure you can handle three consecutive years of negative returns?
2. Different Core Purposes: Returns or Protection?
Don’t forget that insurance and investment serve different purposes.
- Insurance is a “safety net,” providing coverage for your family if you’re no longer around.
- Investment is a “growth tool,” helping you retire early or achieve financial freedom.
In short: insurance answers the question “What if I die?” investment answers “What if I live too long?”
You need to figure out your current stage and priorities. If your family is just starting out, with debt and kids, insurance becomes more important than investing. However, if you already have an emergency fund and no mortgage pressure, then regular investment is more suitable for you.
3. The Truly Smart Choice: “Both Hands on Deck”
You don’t have to choose one over the other. More and more middle-class families in Europe and the U.S. are adopting a “basic protection + long-term investment” combination strategy:
- Allocate 5%-8% of household income annually to term life insurance;
- Invest 20%-30% of disposable income in index funds or ETFs.
For example:
- Mike, 35 years old, with two children and an annual household income of $90,000, sets aside $4,500 each year for a 20-year term life insurance policy with $1 million coverage;
- Meanwhile, he invests $1,000 monthly into an S&P 500 index fund.
This combination provides family protection while also ensuring the benefits of compound growth over the next 20 years.
4. Investment Tools Are Becoming More “Insurance-like” and Insurance Products Are Becoming More “Investment-oriented”
In recent years, many financial products in Europe and the U.S. have shown a “blurring trend”:
- ETFs now include risk-hedging and guaranteed return mechanisms;
- Hybrid “life insurance + investment” products, such as the U.S. VUL (Variable Universal Life Insurance), are becoming popular;
- Flexible life insurance, which adjusts coverage, is suitable for freelancers with unstable incomes.
However, you should note that these hybrid products typically come with higher fees and more complex structures, making them difficult to understand for the average person, increasing the risk of making a wrong choice.
5. A Small Suggestion: Protection First, Then Growth
My personal suggestion is: prioritize insurance, and then invest. This is especially important for those with significant family responsibilities. Why? Because risks don’t wait for you.
You can make money slowly, but sudden events don’t give you the luxury of preparation time.
You Might Also Ask These Questions
- Do I still need term life insurance if I’m young and single?Not necessarily. If you don’t have family responsibilities or joint debts, the priority for insurance can be lower, and using the funds for investments may be more reasonable. But if you have elderly parents or shared debts with friends, it’s still advisable to get basic life insurance.
- What if I’m worried about the investment’s volatility and potential losses?You can choose more stable investment combinations, such as bond funds plus index funds. You can also set stop-loss mechanisms. However, in the long run, you can’t avoid volatility, but you can’t avoid growth either. The key is to extend the investment period.
- Is it necessary to buy both insurance and make regular investments?Absolutely necessary. Financial management is not about a “one-size-fits-all” approach, but the art of asset allocation. “Both hands on deck” is the key to stability.
What’s your take on choosing between insurance and investment? Feel free to share your thoughts in the comments section! Don’t forget to share with your friends to help them avoid pitfalls!
