Two must haves for every investor – Life Insurance and Emergency Fund

Emergency Fund and Life Insurance are two things that every investor must always have in his financial planning exercise.

We, as ordinary investors, depict different financial behavioral habits. Some investors are known to spend every dime they earn (and yeah, we can’t call them investors!); others will save a lot of their monies but won’t let it invest/grow while others actively manage savings and investments to build a neat portfolio.

Which ever category you are in, these are two things in life you must absolutely have.

Life Insurance

If you are the bread earner of your family, remember that an untimely death might push your family to a state of penury if they don’t have the money for their living expenses and all their long term goals. The idea here is to leave behind a lump sum amount for your family that will see them through their lives financially.

You could have kids who need to go to college and a spouse whose retirement needs to be planned. As long as you earn, these goals will be met but in case of an untimely death, the earnings will stop.  This is when they are paid a lump sum by the insurance company.

While there are other forms of insurance available in the market, its best to liaise with your financial planner and decide which one suits you most. So get yourself insured.

Emergency Fund

All investors should have a pool of money that can be used for emergencies. Emergencies come in the form of job layoffs or sudden illness (where health coverage proves to be inadequate) among many others. To meet such scenarios, some amount of money should be kept aside.

Equity is not the place where emergency funds should be parked. If you do not have an emergency fund, you might end up selling your investments in case of emergencies which is not desirable. So make sure you make a neat kitty of liquid emergency fund.

To recap :

Insurance, more specifically term insurance, is what needs to be purchased by anyone who has dependents.

Financial planners will tell you that around 3 months to 6 months of living expenses kept in a liquid instrument is the right way to go. The fund can be put in liquid funds or in avenues where the money can be liquidated quickly.

What must be kept in mind is that both insurance and emergency funds need to be reassessed when a person reaches a major milestone in his life e.g. birth of a child or spike in living expenses. These cannot remain constant throughout your life.

Having these two in one’s portfolio is a must which every investor should realise and implement.