Financial Intelligence

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.