Recently, a friend was diagnosed with blood cancer. He is in 30s, well-built and looked quite healthy until he was diagnosed with this terrible disease. After initial rounds of chemotherapy, the doctors concluded that bone marrow transplant was the only way to have a fighting chance against this disease. Apparently, this will cost 50 lacs. In last few years, I have come across many such cases where seemingly healthy and young (in 30s) guys were diagnosed with serious expensive diseases. Many new research indicate that the main reason behind many of these diseases could be in your genes or plain bad luck.
Medical emergency and untimely death of our loved ones is cause of great emotional distress. However, this is further complicated by the financial burden this often puts on the family. In an advertisement for one of the insurance portals, the wife of the diseased person, while sad, blames him for not buying adequate life insurance. As a result, all her financial plan has gone haywire.
Protect your family and wealth from medical emergency
The first step in financial planning should be to check if we are insured against catastrophic events in our lives. Health care cost is increasing at a rapid pace and is one of the biggest wealth destroyer. We need to plan carefully to meet the challenge of medical emergency.
The below check-list might be of help:
- Do you have at least basic health insurance coverage?
- Do you rely only on the insurance provided by your employer? If so, do consider taking your personal health insurance policy as well. Health insurance up to 10 lacs rupees (for a family of 4) is the bare minimum requirement.
- In addition to health insurance, look to take insurance against critical illness as well accidental death and disability.
- If your employer offers the flexibility to add your parents (to the group insurance coverage) by paying something extra, do take advantage of such options.
- If your employer offers enhanced coverage by paying additional premium, try to take advantage of this option as well.
If you are covered by your employer insurance and are fine with medical expenditure up to certain limit (say 5 lacs) but what to protect against large expenditure, it is a good idea to go for top-up plan. In a top-up health insurance, you choose a threshold level unto which the cost will be borne by you or your existing insurance policy from employer. If the cost goes beyond that threshold limit, your top-up plan kicks in. Top-up plans are cost-effective way to get a big insurance coverage. You can find more details in this article on top-up insurance
Ensure your family doesn’t miss you due to financial reasons
Indeed, the loss of the main bread winner of the family creates emotional as well as big financial distress. We have heard many stories where the son or the daughter had to stop education and work to support their family after the loss of their father/mother.
Over the years, we have been taught that premium paid for pure life insurance policy is sheer wastage of money. We are told by insurance agents that combination of insurance and investment is the best way to protect our family while not losing any money. Term-life insurance policies are mocked as you only benefit from it if you die. This is flawed logic. The pure term plan ensures that your family get enough money in your absence. Hence, the only life insurance that one should buy is a term life cover. Few things to keep in mind
- Life insurance of the main bread winner of the family is a must.
- Contrary to popular recommendations, don’t opt for very long duration insurance policy. Roughly calculate at what age you will be financially independent and insure your life up to that age. Insurance is for protecting your family from financial distress. You should not aim to get your premium amount back or your premium should earn some money.
- Normally, take life insurance worth (30 years of current expenditure + debt obligation (like home loan) – value of liquid assets). This is just a rough formula that I use. Contact your financial advisor to ascertain what is suitable for you.
Finally, what doesn’t kill us makes us stronger. For creating wealth, the first step is to be avoid being poor. Hence, it is important that we protect our life, family and wealth against the cruel unpredictability of life. Medical and term-life insurance should be the first step in financial planning.
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