You might be planning really well and working too hard to achieve your financial goals such as buying a house or your children’s education, but it could all or partially fall flat if you were to face an unforeseen situation, which you are not prepared to tackle. Nobody wants to think of bad times when things are rosy. However, emergencies do occur and have the potential to drain all that you have built if you haven’t set a fund aside to pay for sudden medical bills or a house damaged from natural calamities.
Therefore it’s important to build a strong line of defence well in advance to financially withstand such unwelcome events.
Here are a few emergencies which everyone should prepare for.
Job loss can happen to anyone, anytime, irrespective of their source of employment. It could be a result of change in company policies, losing clientele, market slowdown or replacing human resources with artificial intelligence etc. If you face such a situation, you would look for an alternative source of income right away. However, getting another job could take its own time sometimes and your bills and rent cannot go unpaid. It is best to have a contingency fund worth eight months of expenses in place to meet regular needs.
Investment instruments such as liquid mutual fund (return of around 7-8% p.a.), sweep-in FD account (return of around 7% p.a.) and SIP in balance mutual fund (return of around 12% to 14% p.a.) are ideal to create a fund for this purpose as they ensure high liquidity, moderate return and low risk.
Hospitalisation and treatment expenses have been increasing every passing day and if a health emergency falls upon you, you might have to struggle to meet huge bills competing with your other regular expenses such as rent and utility bills. To keep your other financial commitments undisrupted, you would need financial support outside your monthly income. An appropriate Health Insurance policy would help you get through such circumstances without creating a dent in your finances. Health insurance covers all costs incurred before, after and during hospitalisation.
If you already have a health insurance policy, you can take it a notch higher by buying a critical insurance. Critical insurance pays off the entire sum assured on diagnosis of a critical condition and the money can be used to meet not just the medical expenses but also the regular expenses of the individual and family. This one especially comes handy if the individual is forced out of action from the illness.
However, do consider pre-existing diseases, the appropriate tenure and the cover size before you buy a health policy. The sooner you buy a policy, the lower the premium would be.
Apart from buying a health plan, consider building a contingency fund to pay for emergency treatment, in case you have to take services from a hospital that is not listed in the policy document. The insurance company in such a situation would reimburse the cost incurred for treatment but you would have to bear it in the first instance. You can invest in fixed deposits (FDs) and liquid fund to build a contingency fund for this purpose.
Death Of A Family Member
Losing a family member is emotionally challenging and is capable of leaving the dear ones grieved for years together. The demise can even lead to being financially challenged if he/she is the major earning member of the family. It can cause immense pressure on the family if there is no one to fill in financially. Fund for future education and career of kids, debt repayment etc. could get disrupted. To avoid such financial damage, you must have a life term policy for all earning members in the family. While deciding upon the sum insured, think how much your family would need to replace your income.
Your house and the content inside can both be exposed to the risk of damage in case a natural calamity occurs. While you can’t save your property from such damages, you can find financial support to recover from it. A home insurance could financially protect you from incurring an exhaustive cost for recovering your house and content from damages caused by flood, fire, tsunami etc. Apart from home insurance, you must get health and life insurance for a comprehensive cover against natural calamities.
Have you ever imagined what it would be like if your fun trip turned into a crisis due to loss of baggage or health mishap etc. in an unknown place. You could feel helpless without any support. A travel insurance comes to the rescue at such times of crisis. It takes care of all medical and financial expenses incurred while traveling domestically or outside the country.
You can also create a contingency fund through investment in instruments which are low risk, less volatile, highly liquid and fetch good return.
While emergencies can be of any kind and are hard to foresee, preparing for these situations can give you an edge to tackle any unforeseen difficulties.
(The author is CEO Bank Bazaar)