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Be financially ready for these emergencies in life

Author: Adhil Shetty/Wednesday, April 25, 2018/Categories: Financial Planning, Expert View

Be financially ready for these emergencies in life

They say ‘no one is saved from the wrath of an emergency’. You might be planning really well for buying a house, funding children’s education etc. and you might have nailed all the right investment instruments to save for it. But all your dreams could come crashing and funds could get drained, if you were to face an unforeseen situation such as a job loss, death in the family etc., which you are not prepared to tackle.

The best way to go about it is to be prepared. A liquid fund worth six to 12 months of your expense could rescue you from an emergency situation without disrupting any of the long-term plans or putting you into a debt spiral.

Here are five emergencies you must prepare for:

Health Emergency: Healthcare and treatment expenses have been shooting up with time and if an emergency befalls you, all your savings could get drained. An appropriate health insurance could support you financially through a health emergency or a chronic illness for that matter.

If you already have a health insurance, you can take it a notch higher by buying critical insurance. A critical insurance plan pays out the sum assured on diagnosis of a critical illness and the money can be used not just to pay the treatment bills but also to carry out day-to day expenses of the family and self.

In case you need to get an emergency treatment from a hospital that is not enlisted by your insurance company, you need to have a contingency fund in place to meet the expenses before you claim reimbursement. Your go-to investment instrument in this case would be fixed deposits and liquid mutual funds.

Job Loss: Job loss can happen to anyone at any time as a result of change in company’s policy, losing business partner, change in clientele etc. In case you lose a job, investment instruments like mutual funds (7-8% return p.a.), sweep-in fixed deposit accounts (7% return p.a.) and Systematic Investment Plan in mutual funds (12 – 14% return p.a.) with low risk and moderate return could meet the expenditure of regular bills, before you land another.

Death of A Family Member: The financial challenge that comes along sometimes with the passing of an earning member can be cushioned with a contingency fund in the form of a term policy to ensure there is a replacement of the income in case of their demise. You can determine the size of the fund based on your family’s requirements in terms of debt repayment, EMIs, fund for children’s education, other monthly expenses etc.

Natural Calamity: Natural calamities such as earthquake, flood and fire can cause damage to a house and the property inside. While the disaster can barely be halted, a home insurance, covering repair of the house and contents inside, can help you financially tackle the situation better.

Travel Emergencies: Can you imagine what it would be like to be stuck in a mess in an unknown land due to loss of baggage or illness? A travel insurance in place can financially rescue you if you were to face any emergencies while travelling.

The writer is CEO, BankBazaar.com

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Adhil Shetty
Adhil Shetty

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