Safety first
Investments are meant to build wealth over time, but health insurance protects the wealth you have already accumulated. Without adequate medical coverage, a single hospitalisation can force you to dip into your emergency fund, liquidate investments or even take on debt.
Many young people assume that their employer-provided health insurance is sufficient. While corporate health cover is a valuable benefit, it comes with limitations. The coverage ends when you switch jobs, retire or experience a period of unemployment. Moreover, the sum insured may not always be adequate given the rising cost of health care. This is particularly relevant at a time when medical inflation in India is running significantly higher than general inflation. Treatments that cost a few lakh rupees today could become substantially more expensive over the next decade.
Purchasing a personal health insurance policy early in life offers two key advantages. First, premiums are generally lower when you are young and healthy. Second, you can complete waiting periods before any major health issues arise.
For most professionals in their 20s and early 30s, a health insurance cover of Rs 10-15 lakh is often a good starting point. The premium is usually affordable, yet the protection it provides can prevent a medical emergency from derailing years of savings and investment efforts.
Buy term insurance if you have dependants
Many first-time earners rush to buy a term plan because they are told it is a financial essential. You should strongly consider buying term insurance if:
- You are married and your spouse depends on your income.
- You have children or plan to have children soon.
- Your parents rely on you for financial support.
- You have outstanding loans or liabilities that your family would struggle to repay in your absence.
On the other hand, you may be able to postpone the decision if you are single, no one is financially dependent on your earnings and you do not have significant financial liabilities.
However, delaying a term insurance purchase has its trade-offs. Insurance premiums are largely determined by age and health. The younger and healthier you are when you buy a policy, the lower the premium is likely to remain throughout the policy term. As a result, many financial planners advise young professionals to lock in a term plan early, even if their current insurance requirement is modest. Doing so can help secure lower premiums while ensuring that adequate protection is already in place when future responsibilities arise.
Build an emergency fund
Next in line comes your financial buffer needed in case of unexpected situations such as job loss, medical emergencies, family obligations or sudden large expenses. An emergency fund acts as your first line of defence during periods of financial uncertainty. Without one, you may be forced to withdraw long-term investments at an unfavourable time or take on expensive debt to meet immediate needs.
As a thumb rule, aim to accumulate at least three months’ worth of expenses if you have a stable salaried job and six to 12 months’ worth of expenses if your income is variable, commission-based or linked to freelance work. This money should remain easily accessible and should not be invested in volatile assets such as stocks. Instead, keep it in relatively safe and liquid avenues such as a savings account, liquid mutual fund or short-term fixed deposit.
Go for stocks
At this stage, you can begin investing regularly through SIPs in equity mutual funds or by gradually building a diversified stock portfolio.
One of the biggest advantages of investing in stocks is their potential to create long-term wealth. By investing in equities, you become a part-owner of businesses and participate in their growth. Historically, equities have outperformed most traditional asset classes such as fixed deposits and gold over long investment horizons, making them one of the most effective tools for beating inflation and growing purchasing power. Stocks also offer the benefit of compounding. Also, listed equities provide liquidity, allowing investors to buy or sell relatively easily when compared to assets such as real estate.
For young investors with long time horizons, stock investing can help achieve major financial goals such as buying a home, funding children’s education, building a retirement corpus and achieving financial independence. While short-term volatility is inevitable, the ability of equities to generate superior long-term returns remains their biggest attraction.
A word to the wise: While the wealth-creation potential of stocks is undeniable, investing in equities without adequate preparation can be costly. Stock markets reward patience, discipline and a long-term perspective, not impulsive decisions driven by market noise or social media trends. Before chasing returns, ensure that you have the basics in place. Equally important is having realistic expectations. Markets do not move in a straight line, and periods of volatility are inevitable.
FAQs
My employer already provides health insurance. Do I still need a personal policy?
Employer-provided cover is useful, but it may not be sufficient. The policy typically ends when you leave your job and the coverage amount may not always be adequate. A personal health insurance policy ensures continuity of protection.
Do I need term insurance if I am single?
Not immediately. Term insurance is most important when someone depends on your income, such as a spouse, children or ageing parents. If you have no financial dependants and no major liabilities, term insurance may not be an urgent requirement.
How much health insurance should a young professional have?
The exact requirement depends on lifestyle, city and family history, but many financial planners suggest a cover of at least Rs 10-15 lakh for urban professionals, given rising health care costs.
