Protect First or Invest? It is not a Question of the chicken and Egg

While both protection and investing are equally important aspects of personal finance, if you are starting with your job/career, you should prioritize getting your protection plans first. The reason is simple; you can begin investing once you have obtained extra capital from your job. However, if your health condition does not permit you to stay employed, then you would not be able to earn a living for your loved ones, let alone find excess funds to invest. So, if your financial plan consists only of bank deposits, mutual funds or pension plans, there is one big gaping hole in this plan - lack of term insurance.

There is nothing wrong with assuming that your savings and investments would give you significant returns in the next 20 years or more. Yes, this would work, but have you considered uncertainties of life? Without any protection, you are taking your life for granted, and this mistake can cost your family (if you are no more or if you meet with a fatal accident). Furthermore, your investments will take time to pay off while your term insurance protection starts immediately, once you have bought your policy.

1. Lower premiums: True that! Yes, term insurance is far cheaper than most other insurance plans out there. Since term plan is a pure risk cover, there is no investment component, and it covers the untimely death of the life assured. The insurance company pays the nominee only in case of the life assured’s demise during the policy period. Hence, the affordable premium rates. At a young age, you pay less premiums.

2. Higher sum assured: If you have more liabilities and are ready to pay a higher premium, you can opt for a higher amount assured. You can go for the cover as low as Rs 25 lakh and as high as Rs 100 crore. Getting an adequate cover will mean that your family gets a high corpus and there is no more going through the hardship to make ends meet.

3. Customizable: Yes, term plans are customizable. You can select the policy period, coverage, and even payout options - lump sum payout or monthly income replacement options. If you think that your family members will not be in a position to handle an enormous amount of money (lump sum payout), you can opt for term plans that provide monthly income options.

4. Riders: In Axis Max Life Smart Total Elite Protection Term Plan, you can widen your coverage with the help of riders, which are optional but essential features under term plans. Rider benefits are available on payment of additional premium. For instance, a term plan with critical illness cover rider will provide a lump sum benefit on diagnosis of the covered critical illness (like cancer, heart diseases and other covered ailments). Such financial support will help you in hospitalization as well as non-hospitalisation expenses. Additionally, the money received will put your mind at ease about the medical expenses involved in the treatment of critical illnesses.

The roles played by both investment and insurance are on opposite ends of the spectrum. Simply put, investment increases your potential upside, while insurance protects your potential downside. So, protect yourself against the downside scenarios by purchasing the right term insurance plan!