A familiar doubt unsettles many young earners: Should I ensure adequate insurance coverage first, or should I begin investing in mutual funds straightaway? The common belief is that the earlier you invest, the greater the compounding benefit. Yet, during SEBI’s Registered Investment Adviser training programme, one principle was made abundantly clear: insurance deserves priority over investment.
There is a simple reason for this: Investments secure your future, insurance secures your present. Without that present safeguard, the future plan collapses at the slightest shock. Before examining the mathematics behind this logic, it is important to clarify a few essentials.
We often hear the following points but rarely pause to understand them fully.
1. Insurance protects your primary income source
This is the single biggest reason insurance must come first. Many people mistakenly associate insurance with investment and assume they will receive a lump sum at maturity. This is wrong. Term insurance has no maturity benefit—its only purpose is protection.
2. Investments should eventually become your secondary income
Your investments must grow into a second income stream that gradually replaces your active income over time. That is what creates financial freedom during retirement.
3. Insurance is needed only until your retirement age
Many assume insurance must cover them up to the maximum possible age. But if you plan to retire at 60, coverage until 60 is sufficient. The purpose of insurance is to protect your working years, not your entire lifespan.
4. Never withdraw invested money for routine expenses
A troubling habit among young investors is withdrawing from investments to meet monthly expenses. This defeats the entire purpose of investing. Monthly expenses should come from a savings account—not from your long-term wealth creation plan.
The distinction is simple:
Insurance safeguards your present. Investment safeguards your future.
That is why any responsible investment adviser will first assess whether your current risks are protected before discussing long-term goals. Unfortunately, many still feel that term insurance premiums are “wasted money”. The following calculation demonstrates why that belief is misplaced.
Consider this real-life scenario:
Age: 39
Insurance-free working years left: 21
Required insurance cover: ₹2 crore
Monthly premium for term insurance: ₹2,424
This means a monthly premium of ₹2,424 is enough to guarantee a ₹2 crore tax-free payout to your family if something unfortunate happens before age 60. If you outlive the policy, you receive nothing—and that is perfectly fine, because its purpose is protection, not returns.
Now imagine investing the same ₹2,424 every month for 21 years in a mutual fund earning 13% annual returns.
Value at age 60: ₹28.75 lakh
If the investor dies just before retirement, the family receives only ₹28.75 lakh—not ₹2 crore.
Let us break it down further.
If death occurs in 5 years
Investment value: ₹2.10 lakh
Term insurance payout: ₹2 crore
Insurance advantage: 99.5 times
In 10 years
Investment value: ₹5.72 lakh
Insurance advantage: 34.9 times
In 15 years
Investment value: ₹12.56 lakh
Insurance advantage: 15.9 times
The contrast is unmistakable. Term insurance is the only meaningful financial protection your family has if life takes an unexpected turn. The premium is not a waste—it is the cost of safeguarding everything you plan to build.
Insurance protects your present life. Investments protect your future life. After retirement, if you pass away, your family will only receive the wealth you have accumulated—not an insurance sum.
For every young professional, just starting a career, this clarity is essential. The foundation must be protection first—wealth creation next.
