One of the most common investing mistakes of people, especially the newbies, is jumping right away to the more aggressive investments without securing first the building blocks of the financial planning pyramid such as emergency funds and insurance. In this article, I’ll be walking you through the most common types of insurance and why you need to take care of these first before putting your hard-earned money on other riskier investment instruments.
Among the most important type of insurance that you should be prioritizing, especially if you are the family’s breadwinner and have other people depending on you, are life and health insurance. Life insurance is basically a cash benefit that your dependents will get in the unfortunate event that you leave planet earth unexpectedly. As far as I know, there are no limitations in declaring dependents – it can be your spouse, children, parents, nephew or niece.
But why is life insurance so important? Is it really necessary to have one? Well, the answer is it depends. It depends on your current situation but most likely, you’ll be needing it in the future. You may be a young professional right now who had just graduated from college, but eventually, you’ll get married, have kids, and will be needing the security that life insurance can give to your family. The question then shifts from whether you need it or not, to when is the right time to have one.
Some people recommend getting a life insurance as soon as you enter the corporate world. Others advise to get one after an important change in your life happens such as marriage, having kids or suddenly becoming a breadwinner. Personally, I prefer getting one sometime between the ages 24-28 to be able to take advantage of lower premiums.
Equally important to have is a health insurance. With the rising medical costs today, imagine being confined and having to undergo a $100,000 operation to treat your ailment without having a health insurance (knock on wood!). Having one therefore allows you to undergo these challenging times without completely draining your life savings. Several health insurance providers offer a variety of services that usually include hospitalization expenses, laboratory fees, and doctor consultations.
Going back to the question raised earlier, when is the right time to get your own health insurance? Again, it’s a case-to-case basis and the answer depends on a lot of factors but generally, the younger you are, the better to get one already. As with life insurance, the cost of getting a health insurance significantly increases as you age so it is recommended to have one as soon as you get your first job.