Kunal is doing the right thing by considering investments so early in his career. However, before committing to an investment plan, he must secure his income and savings against emergencies that could derail his financial stability. There may be situations, like a medical emergency or an accident that requires a large sum of money that Kunal may not be able to handle in his current financial situation. Or there may be circumstances that may affect his ability to earn income himself. In such a situation, he may not be able to meet his expenses, let alone make investments.
Insurance is a way for Kunal to make arrangements to deal with such eventualities. The (temporary) life insurance is only necessary for him at this stage if he has dependents whom he supports with his income. More relevant would be insurance policies that help him meet unexpected demands on his income. A health insurance policy will cover him against high medical expenses. A comprehensive car insurance policy will cover any loss of property or life suffered by Kunal or other parties involved in a car accident. Personal accident insurance will provide compensation for temporary loss of income caused by accidents. Together, these three policies will help him deal with any unforeseen financial situation he may face.
These are situations that can even put him in debt and that will have long-term financial consequences, if they are not foreseen. Kunal would do well to incur the necessary expenses to protect himself first. He can then consider investments with the certainty that there will be no disruption of income.
(Content on this page is courtesy of the Center for Investment Education and Learning (CIEL). Contributions by Girija Gadre, Arti Bhargava and Labdhi Mehta.)