Articles January 12, 2022

The fixed monthly income of salaried individuals makes them feel more assured than businessmen who need to fulfill so much obligations despite fluctuating incomes. These obligations include payments for the workforce, vendors, as well as allocating budgets for business promotion & sales, etc. That said, staying away from maintaining financial discipline could peg salaried back dearly. Not saving adequately could cause financial problems should you face income-related issues later. Given the uncertainty prevailing around, such things can happen and take you off guard.

The financial discipline is greatly ensured by saving constantly and putting the same into effective resources to generate enough to meet your financial goals later. With an effective insurance-investment mix, achieving all that becomes a real possibility! While insurance will take care of your loved ones in case of your death, investments can help raise your money exponentially over time if planned and monitored well. Let’s learn all that in detail here.

How Should Salaried Go About Creating an Effective Insurance-Investment Mix?

Creating an effective insurance-investment mix depends on knowing the types of uncertainties you might face during your career. As briefed above, there can be periods of no income for you or your family. The lack of income could be due to the loss of your job or the loss of your life. Plus, there can be times when your savings may get increasingly shorter in case you or any of your family members deal with a medical emergency. Keeping these possible contingencies in mind, you must have term insurance, health insurance and investment plans. But how you should plan and execute all that is of paramount importance. Let’s check all that here.

What is Term Insurance & How Much Should You Buy?

A term insurance plan pays your family the sum assured in case of your unfortunate death during the policy term. The sum assured is the coverage amount you are promised when buying the policy. You can opt for a payout in a lump sum, in installments, or a combination of both. The option you choose can’t be altered later. All it takes is a spotless premium payment throughout the policy term you choose. What’s more, the premium once decided remains fixed throughout the policy term.

Now comes the term insurance amount you should buy to ensure adequate protection for your family in your absence. The amount you choose must accommodate the year-on-year inflation we witness. Predicting correctly the inflation trajectory over the years can be tough to do. But adding 5-6% to your expenses every year can help you sum up a near-perfect sum assured amount for your family in your absence.

But for How Much Time Should You Continue Your Term Insurance?

Choosing the right policy term is as important as choosing the coverage amount; both too short and too long terms are not good to have. For example, Rishabh aged 30 chose a policy term of 10 years, while Chinmay aged 30 chose a policy term of 42 years.

Rishabh will turn 40 by the time his policy matures. So, the possibilities of him dying during that time are far less, making all his premium payments for 10 years redundant. Yes, a term insurance plan doesn’t yield you maturity benefits unless you’ve got a return of premium linked to it. It might lead to lower premium payment, but the purpose of term insurance would most likely get defeated with such a short policy term. Whereas Chinmay would be paying far too much in exchange for continuing the policy for 42 years.

Although one can’t predict the time of their death, having a policy term of 5-6 years more than the retirement age of 60 years would help maintain a balance between the premium payment and the benefit received.

Health Insurance & How It Can Help Salaried Stay Financially Secure in Tough Times

Health insurance covers numerous diseases and conditions in exchange for a premium that you can pay at monthly or annual intervals. The insurance company decides the premium based on the chosen sum insured amount, the number of family members covered under a plan, the existing health conditions of a policyholder, etc. So, when you fall sick or get injured during the policy term, your health insurance policy pays the treatment expenses up to the sum insured amount. In case of multiple claims, your sum insured might exhaust fully making you wonder what to do in such a situation. Don’t worry, the use of a restoration facility would ensure continued health coverage for you.

What more discomfort salaried may face over time is to deal with healthcare inflation, which is rising at about 10-20% a year. Salary rise for some may not be rampant to make up for the enhanced healthcare expenses. That’s where the automatic rise of sum insured in case of no claim in a policy year comes to their rescue. It helps you meet tall medical expenses without any additional premium. The sum insured can rise by a maximum of 100%, further reinforcing the importance of having health insurance.

Which Investments Would Benefit Salaried the Most?

Investing early and doing so in the right instrument is elementary to stay ahead in your life. The definition of right investment can also differ from one individual to another; while equities suit someone who can take greater investment risks for higher returns, risk-averse investors feel at home even with low returns but want capital safety in exchange. But keeping the conservative mindset would come to no use given how badly inflation erodes the value of money over time. Prices can be 2X or 3X in 8-10 years from now, making the earnings of low-risk instruments redundant. Of course, you can’t invest the majority of your savings in equities being a conservative investor. But exposing some to equities for a fairly long time will only help you stand the test of inflation.

However, as they say, it’s not what you do but how you do it matters. Investing in equities through the right medium holds equal importance. You can invest in equities directly, or through mutual funds or unit-linked insurance plans (ULIPs).

All three mediums can suit the salaried class, but the first one would require investment expertise of a different kind. Buying the right stocks based on domestic and international market triggers may not be feasible for someone aloof to equity markets.

People with limited or no knowledge of stock markets better stay invested with equity mutual funds or ULIPs, with the latter offering cushion in the form of life insurance cover too. Fund managers take control of these investment options and choose from a list of handpicked stocks to let you stay ahead in the investment race. However, they don’t commit to taking investment risks which are only for you to bear. So, check the returns of equity funds and the profile of fund managers before investing.

How to Ensure Effective Insurance-Investment Mix from Your Monthly Salary?

Decide the proportion of insurance and investment based on the salary you receive. Term & health insurances can come at a steal when buying them early. Plus, you can choose to pay the premium of these insurances annually, allowing you sufficient time for insurance payment obligations. Even investments come with different payment intervals, but investing monthly ensures discipline which is critical to building a high corpus.

Conclusion

Being insured and financially strong are two pillars of a successful life, which you can achieve following the above insurance-investment mix strategy.

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