Financial Planning: Investment or insurance – what should be your first choice?

By: |
August 27, 2020 2:14 PM

Insurance plays an important role when a policyholder faces an unprecedented situation such as an accident, or a medical emergency. The insurance policy then takes care of such large expenses so that the policyholder's current income is not strained.

health insurance, family floater plan, mental illnesses, mental illness cover, covid-19, IRDAI, Critical Illness Plan, Best Option to Investment, Sensex Vs Gold Vs Silver Vs PPF Vs FD, equity market, bullion market, small savings, mutual fund, check your investment value, invest in gold bond, invest in silver, should you invest in gold and silver, should you invest in stock market, fixed deposit, public provident fund, interest rate of small savings schemeMixing the two – investment and insurance – can have adverse effects on an investor’s portfolio.

Financial planning is more than just tax planning or investments. It includes planning for emergency funds, creating a diverse investment portfolio as well as getting proper insurance. Hence, for investors planning their finances for the first time, most get confused between putting their money towards investments or in an insurance plan. This is where most investors get stuck, deciding between insurance and investment.

Even though it is important for individuals to identify their goals and start investing early, experts say it is also important to secure your earnings before starting to invest. There are various types of insurance plans in the market and different plans offer different types of protection.

Insurance plays an important role when a policyholder faces an unprecedented situation such as an accident, or a medical emergency. The insurance policy then takes care of such large expenses so that the policyholder’s current income is not strained.

When choosing between investments and insurance for first-timers, experts say individuals should know that insurance is an important element in any sound financial planning. Having an insurance cover will help one avoid getting into a debt trap due to rising health care costs or untimely death of the bread-earner of the family.

As there are different types of insurance policies available, such as for different illnesses, accidents, disability, or death, an individual should choose a policy depending on his/her need. Additionally, industry experts say, given the current situation, both life insurance and health insurance are rather a necessity. For instance, having a health policy takes care of exorbitant medical bills. Also, a personal accident cover or a life insurance cover compensates the policyholder’s family if the policyholder meets with an accident, or faces untimely demise.

Having said so, experts say one should never mix up investment and insurance. Mixing the two – investment and insurance – can have adverse effects on an investor’s portfolio. For instance, mixing the two could result in lower returns for the investor’s investments along with getting inadequate life insurance cover.

Mixing of insurance and investment could result in poor returns of the investment because the invested amount could have or else fetched higher returns for the investor if invested in proper instruments. Hence, keep in mind that life insurance is not an investment option. Alternatively, you can opt for term insurance, which comes at a lower premium with higher sum assured.

Get live Stock Prices from BSE, NSE, US Market and latest NAV, portfolio of Mutual Funds, calculate your tax by Income Tax Calculator, know market’s Top Gainers, Top Losers & Best Equity Funds. Like us on Facebook and follow us on Twitter.

Financial Express is now on Telegram. Click here to join our channel and stay updated with the latest Biz news and updates.

Next Stories
1Irdai permits insurers to conduct video-based KYC
2Want to have some passive income? You may try Staking – Know how it’s different from FD
3Should you increase your health cover due to the pandemic? Get all your health insurance queries answered