What has the pandemic taught us universally? 1. Things can go upside down quickly 2. Focus on your health.
Over the pandemic, unprecedented incidents and uncertainty in income have urged people to secure money smartly to avoid instability.
The landscape of insurance and investment has changed. The growing middle class and young population coupled with increasing financial knowledge have put the spotlight on insurance, emergency funds and investment as a part of financial planning.
Financial planning helps in managing money wisely, getting risks covered, tax exemptions and getting rid of debt quickly. For reliable financial planning, complete awareness regarding your income, assets, debts, health, tax reduction strategy, and goals are required.
Understanding emergency funds, investment and insurance in financial planning.
1.EMERGENCY FUNDS -
Setting up an emergency fund of at least 3-6 months of living expenses in case of a job loss or financial/health crisis has become imperative. The primary differentiator is that emergency funds are liquid or easily accessible as compared to investments or insurance. In case of surplus, you can use it to get insurance or invest.
2. INSURANCE - Insurance safeguards you or your family from any type of uncertain loss like life, property, business, or health. Insurance companies get regular premiums from their customers for a period of time and for their financial loss or reimburse expenses when claimed. Health insurance, term life insurance, and critical illness insurance are the most important and beneficial insurance policies.
As premiums get costlier as you grow older, it is best to get insurance as young as possible for you and your parents. Tax-payers can also avail of tax benefits under sections 80C and 80D for investments and medical insurance respectively. Sudden demise of an earning dependent or fatal disease can be a burden mentally and financially. In these cases, if you have investments, you might have to use all of it to get through. However, insurance will help you tolerate huge expenses with just affordable premiums.
3. INVESTMENTS - Investments are made with the motive of increasing wealth. For example, property, gold, stocks, mutual funds, fixed deposits, etc. Insurance companies have also come up with products like ULIPs (Unit Linked Insurance Policies) where a premium is divided between insurance and investment. In layman’s terms, investment is to create wealth and Insurance helps you secure the wealth. Mutual funds and ELSS are popular investment options among first-time investors. ELSS (Equity-Linked Savings Scheme) is popular for tax exemption benefits and a minimum of 3 year lock-in period.
SIP (Systematic Investment Plan) allows periodical investments instead of a lump sum at once. You can plan a SIP for ELSS and mutual funds if you want to start with affordable and regular investments. The best part is that ELSS and mutual funds compound and leave you with significant funds in a long-term investment. Of course, mind the risks before investing.
Post COVID-19, insurance premiums have shot up 15 percent to 40 percent. It is never too late to get insurance or invest. It is safe to say that insurance is above investment for several families. Before committing to investments, one must ensure they have adequate emergency funds and insurance policies to back them up in times of crisis. This gives enough scope to engage in both long-term and short-term investments with risks.
With rising interest in health insurance post-pandemic, companies are leveraging the opportunity to tie up with insurers and offer group health insurance to employees as it is by far the best deal-breaking factor while hiring competitive talent.
The author, Sanchit Malik, is Co-Founder and CEO at Pazcare. The views expressed are personal
(Edited by : Anshul)
First Published: IST