Is insurance a long-term investment? Here The Following Completely Information From AAJI

AAJI says insurance is a long-term investment; what does that mean?

Queenews – The Indonesian Life Insurance Association (AAJI) believes that insurance is a long-term investment. AAJI said that the way to invest in life insurance companies is not always the same as how to invest in other companies.

They argue that purchasing insurance is not just about protecting oneself from unforeseen risks but also about securing the future and achieving long-term financial goals.

Another aspect is that, industrially, AAJI recorded that investment assets in the life insurance industry reached IDR 538.77 trillion in semester I/2023.

Chairman of the AAJI Management Board, Budi Tampubolon, said that insurance companies are long-term investors, considering that the insurance contract period is 10–20 years, up to life.

Budi said that more than IDR 200 trillion was invested in the form of bonds, or sukuk, both government and private.

“Insurance companies are long-term investors; we are not actively trading in the market because our time period or investment horizon is long-term,” said Budi in Jakarta on Wednesday, October 25, 2023.

Then, he continued, if mutual funds and shares were combined, more than IDR 300 trillion would be invested in the capital market in the form of mutual funds and/or shares.

So that why, insurance companies act as both financial intermediaries and long-term investors, utilizing their vast resources to generate returns and contribute to economic growth while fulfilling their primary objective of providing insurance coverage to policyholders.

AAJI emphasizes that insurance policies provide financial security for policyholders and their families in the event of unexpected events such as accidents, illnesses, or death.

By paying regular premiums, individuals can transfer the financial risks associated with these events to insurance companies.

Furthermore, AAJI highlights that certain types of insurance, such as life insurance with investment features, can also serve as long-term investments.

These policies offer a dual benefit, providing both protection and an opportunity to accumulate wealth over time.

Policyholders can potentially build cash value through investment options offered within their insurance policies.

This cash value can be used as a source of funds for future needs, such as education expenses, retirement planning, or even starting a business.

AAJI suggests that individuals should view insurance as a crucial component of their overall financial portfolio.

By taking a long-term perspective, insurance can contribute to wealth creation and help individuals achieve their financial.

Furthermore, Budi said that when the market weakens, the investment income of insurance companies also weakens.

“If the market drops 13%, we drop around 11%–14%,” he added.

Thus, if the policy value decreases or increases because the insurance industry makes long-term investments,

“The market goes up or down; the money that is available generally stays; unless someone surrenders, then we disburse a small portion,” he said.

The reason why Budi explained it is because insurance companies are not as agile when it comes to investment.

“Not because we can’t, but because the principle of life insurance is not to actively trade in the market,” he added.

Thus, Budi concluded that insurance companies are long-term investors, so they are suitable for anything that involves long-term development, such as infrastructure.

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