The initial joy of getting your first paycheck. The pride you get for telling your family you got your first job. Then the sudden realization that you are an adult.
It is as if the world knows you are stepping out into the workforce. Credit cards promoters seemed to be more attracted to you. The familiarity of using a tissue paper to chop your seat. Of course, financial planners popping out of nowhere to help you with your journey with money on financial planning.
So just what kind of insurance do you need when you first start to work?
We all know it’s there and important. We’re just utterly clueless about how it works. (Here are five myths about financial planning). Here’s the most simple, basic things you need to understand. Before we start to answer this question, let’s go back to something more fundamental. Ask yourself this question instead.
What is insurance?
Insurance is a financial planning tool that provide a guarantee of compensation for specified loss, damage, illness, or death in return for payment of a specified premium. In simpler words, it protects an individual/company against adverse events that may or may not happen. If it does, it will greatly affect your standard of living.
Why do you need insurance?
It makes sense to buy insurance to cover huge losses you cannot afford on your own. For example, would you be able to easily afford a $60,000 surgery when it comes? How do you plan for medical expenses? If you cannot work due to a heart attack, will you be able to provide for yourself (mortgage, food, rent) if you can only recover 10 years later? Are you prepared for a critical illness? Even if you have done proper budgeting (financial excel cheat sheet), would you want to use all your saving for one illness?
Your first insurance
While there are many risks to cover for, it will be a good idea to cover for the following risks first.
No matter how much you have in your bank account, a single big ticket hospitalisation is sure to wipe all your savings out. A hospital plan will cover for your treatment in the hospital and also certain outpatient treatments such as chemotherapy. A private hospital or clinic chemotherapy treatment can cost up to $30K for each 6-cycle treatment. To fellow fresh graduates, does $30K look like your first annual salary? Plan for medical expenses now.
Critical Illness Plan
I wonder about you. When I first start working, I have a sudden realisation that if I don’t work, I won’t have money. No work means no money. A critical illness will definitely take my time away from work. Are you stressed up at work? Would you expect someone with a heart attack to work immediately after a surgery? It will probably take a few years before he/she can work back at the same stress level. Not working means no money inflow and that will cause problems because you still have to provide for yourself like food or rental. Or would you like to burden a loved one to take care of you. Are you prepared for a critical illness?
A Life Coverage
This is especially important if you have any outstanding loans (eg. study loans). Have you wondered where these loans goes if you don’t finish paying them? If you are alive, you will be forced to be bankrupt. If you are not around, the bill will go to your loved one. Do you want them to carry your debt?
These is a quick summary of a portfolio of a person who just started to work. You will hear loads of opinion saying how important or how not important insurance may be. In any case, that is their life. My question to you will be,
How do you want to live your life?
Do you want a life worry-free or a life thinking nothing will happen. Anyway, Happy Graduation!
In Journey with money, we want to empower individuals to retire early and avoid financial pitfalls such as this. Such a financial pitfall will delay retirement by at least a decade if not forever. If you already have a financial plan or a financial planner, that’s fantastic. You should be proud that you have taken the first step. However, there are many still unaware of this. We will like to offer our readers (even if you have a plan already or not) a free review by our in-house Financial Planner. He will cater a uniquely designed portfolio for your specific needs and your journey with money.
Feel free to leave comments below or contact him at firstname.lastname@example.org