The Buyt Desk
What is more important? Buying an insurance cover or investing that money? It is common to be confused while you are doing the financial planning, the dilemma of choosing insurance over investment or vice versa. Insurance and Investment are very much an integral part of financial planning but what should be the priority. The financial plan that is perfect for one might be disastrous for another. Every plan will be individual based. Every persons ’ needs, wants, capacity, family background and dreams are very different. While financial planning, one should take into consideration both immediate and long term goals and then only one can arrive at the best-suited plan.
The COVID-19 pandemic has taught us the importance of financial planning and savings. It has shown us how important health is and how life situations can change quickly. People have faced unforeseen, uncertainty in earnings, and exceptional losses. This has made everyone aware of smart financial management. This pandemic has changed our viewpoint about insurance and investment. The young, well learnt and well exposed to financial knowledge, are taking financial planning seriously, especially the insurance and investment part. Planning these two parts well helps one to smartly manage money, cover all risks, become debt-free and get tax benefits.
What is Insurance?
Insurance is a service that you buy for your life, health, asset or property. In case of loss of any of these, insurance will guard you and your family. Like you buy car insurance, to protect you from financial damage when the car gets damaged or stolen. Likewise in life insurance, your dependents or nominee gets a one-time settlement amount known as a claim, when you die. Even in your absence, the life insurance amount will financially take care of your family. Insurance is a safety cover for you and your dependents. You need to pay regular premiums to the insurance company for the term of your plan. There are various types of insurance namely term life insurance, health insurance, critical health insurance, property insurance, business insurance, product insurance, wedding insurance, alien abduction insurance, ransom insurance, and even you can insure each body part. For life and health insurance, the premiums become costlier as your age advances. The younger you are the better benefits you get from insurance. You can avail of tax deductions for the premiums paid under 80C and 80D of the Income Tax Act.
What is Investment?
Investment is an act of making profits by giving your money to a third party and expecting your full amount along with interest /profit to be given back to you in future that both have agreed upon. Moto of investments is to make profits and build wealth. There are various kinds of investments like bonds, shares, gold, mutual funds, ULIP, stocks, and fixed deposits.
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Bonds – In return for interest, you lend your money to the government or a company.
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Stocks – One’s stake is linking oneself as a partial owner of the business.
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ULIPs – In Unit Linked Insurance Policies the premium is divided into two parts and put in insurance and investment. The investment portion creates wealth as the Insurance potion secures wealth.
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Mutual funds and ELSS – mutual funds and Equity-Linked Savings Scheme have the best tax exemption advantages. These compound and build significant funds in the long run.
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SIP – Systematic Investment Plan avails you periodical investments if you can put in a lump sum.
Which one to choose?
Since the COVID-19 pandemic, insurance premiums have increased by 15 to 40 %. In current situations, it is best you can get insurance or start investing at the earliest. It depends on the individual’s needs and conditions if he/she needs investment or insurance or both. Before jumping in to make investments, make sure you have kept aside a good amount of money as emergency funds and good insurance plans to back you in case things go wrong. Investments can be for long term or short term but the risk is always involved. Group health insurance is also gaining popularity in this pandemic. But having individual insurance is always safer.
Summing up
If you want to make sure that your dependents and family are not in a financial crisis after your death, life insurance is a must. But investments should never be ignored as it helps you generate a good amount of wealth over a period of time. Investments take care of you and your family now and in the immediate future while insurance takes care of you and your family when you are no more or in the long run
