Mixing the two – investment and insurance could have adverse effects on an investor’s investment portfolio.
Financial planning is more than just mere investments or tax planning. It comprises of creating an emergency fund, forming a diversified investment portfolio as well as getting appropriate insurance. Hence, for new investors who are planning their finances for the first time, it’s quite natural to get confused and overwhelmed between putting their money towards an insurance plan or different types of investment. This is where most individuals get stuck – deciding between insurance or investment.
Even though investorsought to identify their goals and start investing early, experts believe it is also quite essential to secure your earnings before beginning to invest. There are several types of insurance plans in the market. Also, different insurance plans offer different types of protection.
Insurance plays a significant role when anindividualis thrown in front of an unprecedented situation such as a medical emergency or an accident. The policy then takes care of these bulky expenses so that the policyholder’s current income does not get strained.
When choosing between insurance and investments for new investors, experts say that individuals should understand that insurance is an essential element in any sound financial planning. Owning an insurance cover will aid one to avoid getting into a debt trap. Emergencies come unannounced, be it an untimely death of the bread-earner of the family or the rising health care costs.
As there are diverse insurance policies accessible to an individual, such as for accidents, disability, different illnesses, or death, an individual should choose a policy depending on their needs. Additionally, industry experts believe that, considering the current situation, both life insurance and health insurance are rather a necessity for any individual. For instance, having a health insurance policy can takes care of unreasonably high medical bills. Also, a life insurance cover or a personal accident cover compensates the insured’s family members, given the policyholder meets with an accident, or faces an untimely demise.
Having said so, experts warn about the difficulties one might face for mixing investments and insurance.
Mixing of insurance and investment might result in poor returns of the investment. This is because the invested amount could have fetched higher returns for the investor had it been invested in proper financial instruments. Hence, bare in mind that life insurance is not an investment option. Alternatively, you can opt for term insurance, that is accompanied withes at a lower premium and higher sum assured.
Investments have the potential to generate significantly higher returns. They have the potential to cater to all types of goals – be it short-term, mid-term, or large-term. Investments help one to attain their financial goals and objectives. One should realise the importance of investing, as it can help one to become financially independent.
Whether you decide to move forward with investment or insurance, depends on your personal goals and needs. You can also consult a professional who can walk you through your investment journey. Happy investing!