Some of us anticipate rough patches in life and develop necessary skills and intelligence to exercise
caution and get prepared to handle people and situations, but many of us are
unprepared and are taken by surprise, like me. And most times these patches have a significant
impact on our finances, relationship, emotional well-being and health. Let’s
take a look at five must-have insurances and a few funds to protect you, reduce your
financial risks and save your families from undue stress.
Medical insurance:
Many years ago, during the dotcom bust, I received a call from my former
roommate who was then living in San Francisco. I answered his call with eagerness
to hear the news about his new born, but instead he shocked me with the news of
his layoff. Could you imagine a family with a full-term wife without a medical
insurance in the US? Watching the stress they went through as a family, I
decided not to depend on medical insurance provided by my employer. With no job
guarantees and built in protection in private sector, we all take on a huge
financial in risk without a medical insurance for our family.
Critical insurance: 10
years later I learnt the importance of a critical insurance policy the hard
way. In the summer of 2011, I walked out of a neighborhood clinic after
being diagnosed of PAPVC (a congenital heart issue) that required an open heart
surgery. Unfortunately, the employment policies in India don’t work in favor
employees or offer them a salary during their short-term medical leave. As the surgeon
recommended a 2-month rest post-surgery, I decided to postpone my surgery until
I came up living expenses for my post-operative period.
What if I was diagnosed with a life threatening disease or a
permanent disability that needed prolonged medical treatment and extended leave
of absence? Should our families wither away in hunger because of our
unpreparedness?
Life insurance: In
April of 1961 my grandfather passed away at the age of 39 leaving behind his
wife and six children below 12 years of age. At the time of his death, my grandfather had pending
financial commitment including a house that was half-built in Chennai. And recently,
when I read about the death of Ganesh Raghavendran, a techie in his twenties who
worked for Infosys recently lost his life in terror attack in Belgium I was reminded of my grandfather. Ganesh
had purchased an apartment in Pune a few months before his death. I am not sure
if he carried a life insurance to cover his debts and provide for his family in
his absence. But stories of these widows look similar, burdened with additional financial
responsibility apart from caring for their children.
A Life insurance is a wonderful
instrument, more so than a pre-nuptial agreement. It mitigates financial risk
in case of death and reduces distress of surviving family members by providing them with a cushion. Moreover, life insurance policies can be used as collaterals to secure loans.
Emergency fund: We
are living in interesting times where diseases and cost of treatments have both
reached an epidemic proportion taking a toll on our savings and eating away peace
in our families. In 2006, my father was diagnosed with SVT, a fatal arrhythmia
and was recommended to get a defibrillator implanted. When your heart behaves like a Ferrari engine, the Defibrillator intervenes by discharging electrical impulses to get it to behave like a Maruti Alto.
Unfortunately, Defibrillator is a luxury item for every middle class and comes with a heavy tag of 7
Lakhs. I earned the ire of doctors by trying to procure the
instrument directly from the manufacture at a cheaper cost as they weren't willing to part with their cut. Finally, I had to mortgage some of our life
insurance policies to come up with money which made me realize the value of critical
insurance and emergency fund.
Over the next two years, most of my salary went
towards repaying the loan and we were constantly worried about having
another emergency situation in the family which could push us down the irrecoverable debt trap. From then on I've maintained an emergency fund (6 -12 months of living
expense) to tackle emergency situations.
Exit fund: Death
is the end of all our journeys and it always arrives unannounced. As much as I have seen
families warring over the wealth of the dead, I have seen them struggle to come
up with money to conduct funerals of their loved ones. A Hindu funeral along with a simple 13 day ritual cost anywhere between
1-2 Lakhs. Though there is no insurance to take
care of these expenses and one must systematically put aside some money to meet
out such expenses. My great grandmother and grandmother taught us an invaluable lesson by putting
aside a separate fixed deposit to cover their funeral expenses. Leaving your loved in financial stress or loss, isn't the best way to depart.
Unfortunately, I never learnt art of financial engineering until I went through some personal situations that taught me the importance of financial preparedness to navigate life rough patches in life. Before you make your next big splurge make sure you have the above insurances and funds in place.
PS: When buying insurance products, read the fine print, examine for exclusions and exemptions and do a comparitive study of all options before taking your decision.
