One Emergency Can Undo Years Of Investing Unless You Do This First

For many urban Indians, the journey into financial planning begins with investments. Mutual funds, SIPs, stocks, even crypto. These instruments promise growth and often dominate conversations among young earners. But financial planners warn that building wealth without first building protection is like constructing a skyscraper on weak foundations.

A sudden medical emergency, an accident, or the untimely loss of a breadwinner can wipe out years of disciplined investing. Families are then forced to liquidate assets, often at the worst possible time, to meet expenses that insurance could have covered.

“Over 60 per cent of urban investors in India start with SIPs but postpone buying adequate health or life cover. This sequencing error is what leaves families financially exposed despite having investments on paper,” says Sanjiv Bajaj, Jt. Chairman & MD, Bajaj Capital.

Why The Bias Toward Investments?

Part of the problem lies in human psychology. Investments are visible, exciting, and growth-oriented. Watching an SIP statement grow or tracking a stock portfolio gives investors a sense of progress. Insurance, on the other hand, feels like an expense rather than an asset, even though its value emerges at the most critical junctures.

“Culturally, Indians view insurance as optional and investments as aspirational. But the truth is that an investment-led plan without insurance is like running without a safety net. One fall, and you start from zero,” Bajaj points out.

This misalignment means households proudly show growing portfolios but carry inadequate health insurance or none at all. When a crisis hits, the first casualty is liquidity, followed by the erosion of compounding benefits.

The Right Order: Protection First

The sequencing of financial planning matters. Experts outline a simple ladder:

• Health Insurance: Covers hospitalisation, critical illnesses, and rising medical inflation. A family floater plan of Rs 10–15 lakh is often a practical start for young families.

• Term Life Insurance: Pure protection that secures dependents. Coverage should be at least 10–12 times annual income to replace earnings in case of loss.

• Emergency Fund: A liquid buffer of 6–9 months’ expenses ensures liquidity for job loss or sudden needs.

Only once these foundations are secure should investments in SIPs, stocks, or other instruments take center stage.

“India’s medical inflation is running at nearly 12 per cent a year. If a family doesn’t lock in health cover early, their portfolio is forced to fund hospital bills and compounding is broken before it even begins,” Bajaj said.

Why Sequencing Matters

In practice, many Indians do the reverse. They invest heavily but with little or no insurance. When emergencies strike, they end up breaking SIPs or redeeming equities at low valuations, losing both protection and long-term growth.

Consider two 30-year-old investors. Both invest Rs 10,000 monthly in mutual funds. One secures a Rs 1-crore term cover and a Rs 15-lakh family floater; the other skips insurance. Ten years later, if the second investor faces a major health emergency costing Rs 12 lakh, the only way out is to liquidate investments. That not only erases compounding gains but also derails long-term goals like home ownership or children’s education. The first investor, meanwhile, retains both coverage and portfolio growth.

Markets don’t wait for your emergencies. If you are forced to sell during a downturn, you not only lose wealth, but you also lose time. Insurance prevents that premature exit,” Bajaj adds.

Building Both, Not Either-Or

Importantly, protection and investment are not opposing goals. Allocating a fraction of income to insurance does not derail wealth creation. A 30-year-old can secure a Rs 1 crore term cover for under Rs 1,000 a month, less than the cost of a dinner out. Similarly, comprehensive health cover costs a fraction of annual income but shields savings worth years of disciplined investing.

“In financial planning, insurance is the shock absorber. It does not add speed to the vehicle, but it ensures you can keep driving towards your goals even after a jolt,” Bajaj explains.

With protection in place, investments get the breathing space to grow uninterrupted. Families no longer need to choose between paying hospital bills and staying invested. Instead, both tracks—protection and growth—work in harmony.

The Takeaway

For young professionals and families alike, the message is clear: protection first, investment second. The right sequencing prevents financial setbacks, safeguards dependents, and ensures that wealth creation stays on track.

Investments build the future, but protection defends it. Unless you secure the downside, even the best portfolio risks collapse when life takes an unexpected turn.