Investment strategies for young working women – Part 2

Affirmative action, Financial Independence, Insurance

In my post of 15th March on this topic I had written about the rule of 72 and how this simple number can give you the rate of interest that you are getting for an investment or the amount of time it will take to double your money if the rate of interest is known.

Today I will talk about an essential item for a young girl who’s just entered the workforce and that is insurance. Even before you think of making any investments, first go and insure yourself. Even if you are single today. Someday you will have dependents. You are not living on island. So you will end up creating dependents who will suffer if you have to die early or if you fall sick with a long medical condition.

A simple rule – whether you are taking life insurance or medical insurance – is start at the earliest. The earlier you start the lower is the cost.

Life Insurance – As far as feasible, whenever you are considering life insurance, look only for the “term” plans and not “endowment” or “money-back” plans. The reason for taking life insurance is to cover risk. It’s not to do saving. Also understand that in a lot of countries taking life insurance allows you to gets you income tax benefits also. So a lot of life insurance agents will sell you the idea of taking life insurance to save tax. This is a perfect example of a “tail wagging the dog”.

When you take life insurance there has to be only one objective – how much risk can I cover at the lowest possible cost.

Why am I pushing you to go and take life insurance as the first thing when you get your first paycheck. The life insurance companies keep increasing their premiums based on age. They also have other criteria but the biggest factor is age. So when you take life insurance at a young age, they believe that you have a long runway and the probability that they will have to pay for your death during the coverage period is low.

As you grow older the chances that you will die during the coverage period keep going up.

So by taking it at an early age you keep your premiums to the lowest and get the highest possible coverage which is practical.

Initially the premium for a coverage of a 30 year plan may seem high by your earning capability today. However please understand that after 10 years, as a percentage of your income this amount may be only a few percentage points but the risk cover would still be the same amount.

Medical Insurance- Similarly even if your company provides for medical insurance, you should opt for a personal medical insurance. The younger you are, the lower is the premium. In addition because of your age, chances are you will not fall sick and therefore next year you could get a bonus coverage for the same price. Every company has their own group medical policy. By having your own personal policy over and above the group insurance provided by the company you are ensured of a minimum level of insurance throughout your life as long as you continue paying premiums. In addition to that in most countries, medical insurance also gets you tax benefits.

These days you have enough policies available from direct insurance sites, which you can compare on your own. You also have aggregators who can suggest you options once you give them your criteria. However my advice would be to compare both the aggregators and direct company sites always. A lot of times at a minor price differential the direct company may offer a much higher level of benefits.

Take your first step. Go visit an insurance site. Start evaluating plans. Get your coverage for a Rainy Day

Carpe Diem!!!

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