Personal Finance

Insurance before stock market!

Everyone seems to be investing in the stock market these days, which is great. But how many of those investing have insurance?

Before you even think of investing in the stock market, it is very important to have both health insurance and term insurance.

An unexpected health complication or death of an earning family member – can completely turn your life upside down.

While emotionally it can be a very difficult time, it can get worse if you do not have finances to cover the cost of treatment.

Quality healthcare is expensive in India. Cancer treatment can cost you several lakhs and, in some cases, even crores.

Diseases or unfortunate events do not announce their dates before arrival – which is why having adequate insurance is of utmost important – especially if you have dependents (kids, housewife, old parents).

Life Insurance (Term Insurance)

You earn 10 lakhs a year. You pay a ₹ 1200 every month as insurance fee. Something happens to you; your family gets ₹ 2 crore.

Isn’t that a small fee to pay, for covering a big risk?

We pay a fee every year towards car / two-wheeler insurance because it is mandatory – but we do not have life insurance – even though life is far more important than a car.

If you are the sole earning member in your family, and you have young kids – it is very important for you to have 15-20 times your yearly income as ‘sum assured’ in your life insurance policy.

Some tips on term insurance:

  • Never combine insurance and investments. Pay only for a pure ‘term insurance’.
  • Avoid ULIPs (Unit Linked Insurance Plans)
  • Try to pay less premium and get higher ‘sum assured’.
  • Always be honest when you are buying term insurance. If you are a smoker, tell them you are a smoker. You will have to pay higher premiums, but the insurance claim will get rejected if you were a smoker and didn’t mention it.
  • The year till which you need coverage can be reduced to save premium or opt for higher ‘sum assured’.
  • For example, if you are 35 and have a 4-year-old son and 1-year-old daughter. You only need coverage till you are around 55 years old. By that age, you kids will be independent. Also, if you do live till 55 – you would have enough time to earn, save and grow your investments. As time passes, as kids grow up and as your financial situation improves – the importance of life insurance reduces.
  • So, instead of paying a premium of ₹ 1200 for 1 crore sum-assured till the age of 65. Pay the same ₹ 1200 for 2 crore sum-assured till the age of 55. Your family will get more money, and you end up paying the same premium. It’s a win-win situation.
  • Pay your insurance premiums on time.

Health Insurance

Life Insurance is for a single event called ‘death’. But health is much more complicated. Diseases can vary from minor to life-threatening.

And like mentioned above, the cost of healthcare treatment in India is very high.

Health Insurance covers the cost for treatment – which includes major expenses like hospital room rent, doctor’s fee, operation theatre charges, medicines etc.

This cost can run into lakhs and in some cases, go into crores.

Again, by paying around ₹ 500 – 1000 a month (depending on your age and health), you could get coverage up to ₹ 1 crore.

If you invest in the stock market, build a portfolio of 25 lakhs by the age of 35 – and then suffer a disease which ends up costing you a lot (like Covid in recent times) – you could end up spending all your savings, stock investments and more on your healthcare treatment.

To cover this risk, it is important to have adequate health insurance – without which, it is pointless to focus on growing your savings in the stock market.

Some tips on health insurance

  • Always be honest during the telephonic conversation with the doctor after you buy health insurance.
  • Clearly mention every single detail about your medical history.
  • There are few companies which provide super top-up coverage up to ₹ 1 crore. It is advisable to take it, if you can afford it.
  • Buy insurance from a reputed company. Make sure it has ‘cashless’ tie up with hospitals near the area you live in.
  • Discuss the policy in detail and read the insurance document carefully once you receive it.
  • Pay your insurance premiums on time.

Insurance might seem like an additional expense, but it is very important.

Let me end this depressing article on a positive note. I hope all the insurance premiums you pay goes to waste, and you live a long and healthy life.

If you have any questions, feel free to ask in the comments section below.

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