In the midst of the COVID-19 lockdown, I wrote an article about financial priorities during these uncertain times and included the kind of financial budgeting I would do, how much I would save and how I’d invest the rest. Click here to read them.
As HelloGold builds out its portfolio of products we want to offer our customers, it became clear to me that there were many ways in which we can build our financial safety net. Something beyond the essential ‘rainy day’ fund that would serve to reduce the financial impact on our financial security and to protect ourselves and loved ones from the financial effects of unexpected events like the recent pandemic, a catastrophic illness or something of its equivalent.
I have also talked about how I see gold as a simple but effective hedge or insurance for your investment portfolio – so I am not going to dwell on that here.
Instead, I want to spend a bit of time on insurance policies that I believe we should all have: life insurance, health insurance and disability insurance.
Life insurance is particularly important if you have a family or people who are dependent on you. It doesn’t have to be financial dependence; it can be actual dependence like caring for your parents or your siblings. For example, if you were to die, who would take over your caregiving responsibilities and would the new caregiver have to be paid? Life insurance gives your beneficiaries the funds to pay for the work of the new caregiver in this example.
Even if you don’t have any dependents at this point in your life, it probably makes sense to get one before your 30s – go and buy the cheapest, long-term, level-premium term life insurance policy from a reputable company that you can find. It will work out to be cheaper in the long run.
I personally prefer the cheaper ‘term life’ as a product because all your premiums go into coverage – when you stop paying at the end of the term, you are no longer covered and there is no cash component to this. In contrast, the more expensive ‘whole life’ is life insurance combined with a savings component, ensuring that there is a cash value at the end of the term.
In Malaysia, most people have their investments handled by KWSP, Tabung Haji and PNB. I believe that we should look at insurance products from a pure insurance standpoint (and investment products from an investment standpoint). For example, my main objective for life insurance is to ensure that my children would have the financial resources they would need to get themselves to the point where they can provide for themselves; so for me, coverage that lasts my entire life didn’t make a lot of sense.
With life insurance settled, next I would consider health insurance. This is an obvious one – but we need to make sure that we have a policy that can cover the really expensive hospital and medical bills. It can be very painful not only to use your own ‘rainy day’ fund but also to have to have less than the best care for you and your family.
Besides that, there is disability insurance to replace your income if you are unable to work due to illness or injury. Some will justifiably say that this is a luxury – and I would tend to agree simply because I would choose to buy life and medical before disability insurance. But assuming that I have adequate insurance coverage and enough finances to fund this, I believe that disability insurance would work like an ‘income replacement’ if you find yourself in a situation where you can’t work (for medical reasons) for a period of time.
Now, once you have your plan to build your ‘rainy day’ fund, to secure the right kind of insurance cover and your gold to act as your hedge against your investments in KWSP, Tabung Haji or PNB, then you’re ready to turn to the task of accumulating wealth! But…that’s a topic for another post at another time.