The wealth-or-insurance dilemma simply boils down to this: both are important to an individual. Here’s why.
What should come first for you – wealth creation or life insurance cover? Thankfully, this shouldn’t be as complicated as the chicken-or-egg debates that saw even Stephen Hawking get involved; the late astrophysicist voted for the egg, while his opponents quoted from the biblical Book of Genesis to back the chicken.
The wealth-or-insurance dilemma is more straightforward, and it simply boils down to this: both are important to an individual. As William Scott Page, often called the ‘originator’ of the life insurance settlement business, says in a signed article, even the super-rich recognise the importance of life cover, not only as protection for their dependants but also as a financial tool.
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Need for wealth
Page does not talk of wealth, perhaps because his examples are already rich; for that, we can look at what US-based personal finance advisor Ramit Sethi has to say. Born to Indian immigrants, Sethi is best known for his 2009 bestseller I Will Teach to be Rich, as well as his eponymous blog page that has given him a cult status.
Explaining in one of his blogs why he, as an individual, needs wealth, Sethi says: “In one sentence, I never want to have to make a bad decision because of money (e.g. staying at a job I don’t love because of car payments).” Basically, what Sethi is saying is that wealth gives him the freedom to live life on his own terms.
Sethi also lists long-term goals his wealth would help him accomplish – from the noble (afford his parents a retired life where they don’t have to work if they didn’t want to), to the selfish (enable him to lead a comfortable and ‘sometimes gaudy’ lifestyle). He then asks his readers why they want to get rich: to lead a luxurious lifestyle, travel a lot, eat at nice restaurants, start a business – it could be anything.
“I believe it’s really important to consciously think about why you want to be rich,” Sethi tells his readers. “If you don’t, it’s easy to get caught up in a race to get more and more money without ever knowing why.”
This is the essence of financial planning: setting of goals; once you do this, you will find an understanding of why wealth is important.
Need for life cover
If wealth creation is the basic aim of financial planning, life insurance is one of its key elements.
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Life insurance is therefore an assurance that your loved ones have an assured income at regular intervals, even when times are difficult. Isn’t that what wealth is also meant for?
However, wealth creation is a process that happens over a period of time – it takes time. Unfortunately, something can always happen out of the blue that jeopardises the financial security of the family; that is when insurance comes as a saviour, as Delhi homemaker Rani Dey, found out to her relief. Rani’s husband, who held a modest job, died in his sleep following a massive stroke aged 45. Overnight, the mother of two was left staring at an uncertain future. It was only when the death claim cheque on her husband’s life insurance policy was delivered to her that she found a lifeline, a breathing space to start a new chapter.
This brings us to the old question: wealth or protection? Let’s go back to life settlement expert Page. As CEO of his company, he says he saw how clients who did not live ‘from paycheck to paycheck’ still buying life insurance. “Wealthy folks worry about money too, maybe just on a different scale. How families will continue if a primary breadwinner passes away is a relevant concern across all income groups.”
So there’s the answer: you may have the wealth, but your family still needs protection – and that’s something a life insurance plan can ensure.