In today’s fast-paced world, people are more vulnerable than ever—physically, mentally, and financially—to a staggering array of environmental pressures and hazards. Take a look at these statistics:
- Every four minutes, an Indian is killed in a road accident[1].
- Every year, chronic illnesses like cancer, heart disease, and respiratory ailments contribute to 60% of all deaths in India[2].
So whether it’s the risks and challenges associated with their daily commute (smog, road accidents etc.), a demanding professional schedule (resulting in work stress which can trigger health complications like cardiac disease), or their family’s’ security and well-being, financial safety nets are non-negotiable.
Creating a resilient and comprehensive safety net doesn’t happen overnight. It takes time and requires planning. All of us dream of a ‘disaster-proof’ life. This is only possible (or close to possible) with a clearly articulated plan or blue print—one that can help ensure that life doesn’t catch you off-guard.
Component #1: A financial reflection statement
The first component of a successful plan is a financial reflection statement. Write down what you hope to accomplish both personally and professionally, as an individual and in your capacity as a parent and spouse.
Once you’ve done that, assess your financial status and ask yourself whether you have the wherewithal to meet your goals. What are your assets and liabilities, and what shape is your balance sheet in? This will serve as a yardstick to help you measure the progress you are making towards realising your dream of financial resilience.
With a plan in place, start assembling the other elements that form of the core of a strong financial framework. These are listed below.
Component #2: Emergency funds
Life is unpredictable, and it is often this unpredictability that wreaks havoc on people’s personal finances. Make sure you have sufficient liquidity to cushion the blow of unexpected life events like job loss or accidents.
Component #3: Retirement funds
These days, retiring from work doesn’t mean that you’re retiring from the world. Building a nest egg will give you the financial resources you need to live an active and eventful post-retirement life. There are a whole host of financial instruments you can use to prepare yourself for an active life of leisure, including mutual funds and government provident funds.
Component #4: College funds
As higher education grows increasingly more expensive, it is critical that you have a fund that is dedicated to meeting the financial demands of your children’s higher education. The money from the fund could come from market investments or from savings instruments.
Component #5: Life insurance
Last but not least is life insurance. A robust financial plan can’t just revolve around the twin assumptions that you will always be around, or that you’ll always be in good health even when you are around. The two biggest curve balls that life can throw us are ill health and death, and it’s best to be prepared.
Ideally, you would look for a life insurance policy that
- Can protect your dependents in the event of your complete inability to provide for them, whether due to chronic illness, disability, or death.
- Would defray the cost of treatment for the critically ill policyholder as well.
Some policies offer premium waivers in the event of disability. If the policyholder becomes disabled, all future premiums are paid for by the insurance company even as the life cover continues. Certain plans allow policyholders who are critically ill to use the benefit amount to bankroll treatment.
One plan that successfully combines health and life insurance, and focuses on the policyholder and his/her family before and after the policyholder’s death, is ICICI’s Prudential Life iProtect Smart. In addition to features like the Accidental Death Benefit, Prudential Life also has options like the Chronic Illness Benefit and the Waiver of Premium on Disability benefit.
It is clearly impossible to overestimate the importance of a good financial plan. Crafting one that makes provisions for major life events and occurrences, many of them out of our control, is what every professional should seek to accomplish at the earliest.
[1] http://sites.ndtv.com/roadsafety/important-feature-to-you-in-your-car/
[2] http://southasia.oneworld.net/news/chronic-diseases-account-for-60-of-deaths-in-india-study#.VlaxmNIrLIU
It is a paid article for ICICI’s Prudential Life iProtect Smart – BEWARE!!!