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Why you should start with insurance, emergency fund
Emergency fund acts as a back up to your expenses.
Emergency fund
The first financial kitty you must have is emergency fund. This fund will take care of your emergency need. In case of a job loss or pay cut or any kind of unforeseen circumstances that affect your income, the emergency fund acts as a back up to your expenses. Ideally you should have at least 3-6 month of expenses in the form of emergency fund. If you are working in a sector where the job security is lower, you will have to build a kitty on 12-24 month expenses. To build an emergency fund you can consider debt instruments such as liquid fund. You can also use fixed deposits to build the emergency kitty.
Health insurance
Irrespective of the condition of the economy, even before you start saving and investing, you need to have a health insurance policy. The cost of healthcare can deplete your savings quickly and can also push you into a debt trap. A small amount in the form of premium can give you a cover of the amount that would take you years to build. For instance, with ₹7000, a30-year old you can get a cover of ₹10 lakh. While buying a health plan, check of sum assured, claim settlement ratio and exclusion. You can also increase the amount by buying a top-up plan and a critical illness policy.
Life insurance
In an unforeseen event of loss of life, you don’t want your family to suffer financially. In order to take care of their financial needs, you can buy a basic term plan. Term plan provides you higher cover at a small premium. You can also buy a personal accident cover to protect your income loss due to permanent disability. Buying term plans online are cheaper. Don’t just look at the cost of the term plan. You should also consider claim settlement ratio and sum assured. Calculate the sum assured amount based on the expenses. Another thumb rule you can use is linked to your income. In case you don’t have dependents you can avoid this product.
