Should You Insure First or Invest First

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08 min read

Insurance and investment are two of the essential parts of personal finance. However, insurance is crucial as it would help you sail through the financial difficulties that may arise due to unprecedented development in this modern world of uncertainties. We have covered the following in this article:

What Exactly is Insurance?

Insurance is an agreement between an individual (the person availing insurance) and an insurer (typically an entity). The insurer would provide the insured with financial protection against certain kinds of losses. The insurer assumes the risk in exchange for timely payments of premiums at predetermined dates. 

There are various kinds of insurance available for different assets. The most popular ones are health and term insurance. Health insurance is a kind of insurance that provides coverage to the insured against the probable medical expenses resulting from a health emergency leading to hospitalisation. 

Term insurance offers financial protection for the dependents of the insured when an untoward incident takes the life of the insured. In such cases, the term insurance policy pays out the policy’s sum assured to the term policy nominee. This is done in exchange for the annual premium payable by the insured.

What is Investing?

Investing is an act of using your money to purchase capital assets such as stocks, bonds, and so on, with the intent of generating a stream of income in the future. Some individuals invest in realising capital gains, which is the price difference in the cost of purchase and cost of selling. 

Investing is the only way of growing your money. Investing helps you achieve your financial goals sooner. Just saving money will not help you get rich. For that, you have to invest your money in suitable investment options.

Should You Insure First or Invest?

In this modern era of uncertainties, it has become essential to stay protected against all possible financial perils, which is beneficial for individuals and their dependents. Simultaneously, the ever-rising rate of inflation has made it extremely important for individuals to get started with their investment journey at the earliest. This is when the question of should you insure or invest first arise. 

Given that the right insurance policies protect you against possible financial losses arising due to unprecedented developments, it is of utmost importance to ensure first. With a term insurance policy, you get a high sum assured for the payment of a nominal annual premium. It gives you all the more reason to avail insurance before investing.

How Should You Go About Insurance?

The modern world is such that you are not sure of what will happen in the next minute. Medtech has evolved, so have the viruses and bacteria that cause diseases and infections. If you land on a hospital bed, you likely end up spending a fortune on clearing your medical bills. This has called for availing of the right health insurance policy.

A health insurance policy should provide sufficient medical cover for you and your family members. You have to ensure that the policy covers most of the diseases your family members are vulnerable to and has several hospitals under its network. Having the right health insurance policy keeps you away from settling hefty medical bills. Not to forget, the premium you will pay for the health insurance policy should be reasonable.

If you are the breadwinner in your family, and if an untoward incident results in your death, your family members will be left stranded with no income. To avoid such a scenario and protect your family’s future, you should avail a term life insurance policy. 

The premiums are affordable, and a term life policy provides a high sum assured, which would be enough to cover your family’s expenses and maintain their lifestyle that you are providing them. Term life insurance comes at a low premium if availed at a young age. Therefore, you have to avail a term life insurance at the earliest. 

How Should You Go About Investing?

Insuring before investing is always a good move. However, you should not delay investing. You have to start investing from a young age to realise higher gains over time. Yet, you have to be aware of the risk associated with your investments and should stay from those options whose risk levels are not matching your profile. 

If you are a risk-averse investor, you may consider investing in bank deposits (FDs and RDs), government savings schemes, bonds and debt mutual funds. If you are a slightly aggressive investor, you can invest in hybrid funds and equity-linked investments. If you are ready to take considerable risk in exchange for higher returns, you may invest in direct equities and equity mutual funds. 

Regardless of the investment option, you choose to invest in, you have to ensure that your objectives are being served and the risk levels of the investments are in sync with your risk tolerance level. 

Conclusion

Insuring and investing are two of the most important components of your financial plan. You must ensure before you start investing. However, you should delay your investments as inflation will eat into your savings, and the best way to accomplish your financial goals is by investing.

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