Insurance or Investment – which is more important?
Apart from creating savings, the other two financially responsible things to do are Insurance and Investment. Whether you’re a newly financially independent person, or you have a family that’s dependent on you financially, you may be wondering which is more important – Insurance or Investment? Do I grow my financial portfolio with investments or insurance plans?
Investing in either an insurance plan or a financial scheme may have your finances in splits. So, you might have to ask yourself the tough question – Which one do I pick?
This article will be answering just that.
Importance of Insurance
A single definition of insurance, yet a simple one is – a backup plan.
- When you have large medical expenses, a health insurance covers the expenses.
- While your vehicle suffers damages, a vehicle insurance pays for the damages.
- When the earning-family member is no longer present, a life insurance ensures that family still receives income.
The importance of insurance lays in the fact that it’s a safety net to fall back upon during troubled times.
Importance of Financial Investment
It is necessary to invest money, to make money. The purpose of a financial investment is to ensure that your earnings do not stagnant. Money kept in a bank account generates a low interest and does not grow. However, investing in mutual funds, property, stocks, and SIPs, is a method of growing your financial income.
You may reap the rewards of your investment after a long a period of time; as much as 10 to 20 years later.
Which is more Important?
The fact is that both are necessary to live in a financially secure life. However, it is quite clear that investing in insurance is more important.
Why? While investing in financial portfolios is important, if ever an emergency situation occurs, such as ill-health, an accident, or the death of an earning-member, it is important that you have a financial safety net to fall back on.
Insurance is about taking care of you now. While, investments are important for financial security in your later years.
Have the Right Financial Plan
That’s not to say that you should only spend on insurance plans and ignore growing your financial portfolio. A good financial plan should allow you to:
- Create a saving fund
- Have insurance plans
- Grow your financial portfolio
Ensure you allocate a sufficient amount of your monthly income to each. For example:
- Saving fund: 70% of your income
- Insurance plan: 10% of your income
- Your financial portfolio: 5% of your income
This percentage may vary based on your income and fixed expenses.
To conclude, you should not ignore spending on insurance or investing in financial portfolios. Both are important to staying financially healthy.
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