What’s the first thing that came to your mind while reading “your first paycheck?.” It might be a new phone, a long vacation, or some other fancy new thing. Well, you deserve to spend on things you have desired while working hard to reach this position. However, making a habit of financially sound decisions should be prioritised right from your first paycheck.
Now that you have started earning, you must understand that life is full of uncertainties. The events can be a happy surprise or an emergency that needs your attention. Initially, many of us just spend our paychecks without thinking about savings. If you’re also just waiting for the next paycheck to spend it all on a new gadget, take a step back. What if there’s a medical emergency and you don’t have enough savings? It can get pretty difficult to manage a large sum of money in that time. It is better that you prepare for such situations by investing in Insurance.
So, if you are expecting that first paycheck soon, Insurance should be on the list.
What is Insurance?
Insurance is a legal contract that you enter with an insurance company. Under the contract, the insurance company is obligated to pay you compensation if a predetermined event happens in the future. It insures you against the uncertainty, which is bound to create a loss, damage, or force you to spend a considerable amount. For example, car insurance financially protects you against damages in case of your car’s accident. It can be anything from repairs to replacing car parts. However, there are certain factors you need to understand before buying insurance.
Premium: An insurance premium is an amount you have to pay to the company regularly until the policy term matures or the insured events happen.
Nominee: Nominee is the person who would get the insurance money and other benefits in the event of the policyholder’s demise.
Sum assured: It is the amount that the insurer promises to pay to the nominee in case of the policyholder’s demise.
Sum insured: It is the maximum amount that the company would pay you for damages or loss on the happening of an insured event. It is also known as the maximum coverage.
Types of Insurance: Which one do you want?
As a fresh earner, you must handle your finances effectively going forward. As life is uncertain, you never know what can happen, and without inadequate savings, it can become hard to cover expenses that arise out of eventualities. Hence, your first priority with a regular source of income must be investing in a comprehensive insurance policy. It can all or any of the following types:
Life Insurance
Life insurance financially protects the policyholder’s family and dependents in case of the policyholder’s demise. The policy provides a lump sum amount, called sum assured, in case of the policyholder’s demise to the family or the nominee. Before buying, you should study the different types, such as term life insurance, endowment plan, or retirement plans. It will help you in making an informed choice and select what’s best for you.
Another important aspect of Life Insurance is maturity benefit. In this, the policyholder would get back their investment even if they live through the term. It includes the premiums plus a bonus. In case of the policyholder’s demise, their nominee would get the policy amount.
Health Insurance
Medical and hospitalisation bills can take a big chunk out of your pocket; that’s why you should prepare for them financially. Health Insurance covers your medical expenses for general illnesses and hospitalisation. The insurance company covers only those medical expenses which have been mentioned in the policy.
Motor Insurance
Motor Insurance is available for cars, two-wheelers, and commercial vehicles. Also, it is mandatory to get third-party Insurance under India’s Motor vehicle rules. Several covers offer everything from repairs compensation to theft cover. The policy reimburses expenses related to theft, damages, and repairs of your vehicle.
Property Insurance
Property Insurance provides financial protection to the building and its contents from damage or theft. For example, damage to your house because of a fire or a burglary would be reimbursed by the company. You can get it for your shops, home, office building, or commercial space. It’ll give you funds for damage through floods, theft, explosions, or fires.
Education Insurance
If you have children, you would’ve to shell out a considerable amount for their higher education. Education Insurance proves to be a vital investment for covering these education costs. It is like a savings plan as you would be investing some money each month, and your kids would get it in a lump sum amount.
Benefits of getting Insurance
- Tax Benefits: You can decrease your taxable income by investing in Insurance. The amount for a life and health insurance premium is eligible for rebates up to Rs 1.5 lakhs.
- Financial Security: Financial security is crucial during adverse situations. Health, life, or property insurance can provide you a security blanket for handling the expenses.
- Security for your dependents: In the event of demise, the family can receive a considerable sum of money to support themselves financially. It can help them be stable and manage their expenses in the policyholder’s absence.
- Protect your savings: It takes up a lot of time to build your savings and emergency fund. That’s why you should get Insurance to protect your savings against sudden, considerable expenses.
- Financial planning: An insurance can significantly contribute to your journey of achieving your financial goals. It will help you avoid sudden, considerable payouts and also reimburse the insured losses.
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Earning that first paycheck can get several emotions of excitement, joy, responsibility, and independence on the surface. You should take a breather and see what it is that you actually need. Insurance can protect you and your loved ones from financial burdens and help them deal with life’s uncertainties too. So, assess what you need, which Insurance fits the best for you, and start investing.