Updated: June 18, 2021 3:27:10 pm
Written by Tarun Mathur
Having a backup plan when things go sideways is something at the very core of financial planning. However, how can you plan for something that happens once in a century? The COVID-19 crisis has been one such world-changing once-in-a-century event that left many people looking for answers.
People who fell prey to the COVID-19 virus had to spend a fortune to get treatment; people lost their jobs or faced salary cuts; self-employed individuals and small businessmen have been forced to stay at home, losing months of income and also investors went through a financial and emotional rollercoaster over the last year or so.
The answers to their questions are not easy as there is no one-size-fits-all formula that can help one to sail over a crisis of such magnitude. However, there are some time-tested ideas which when combined with the new lessons that we have drawn from this rare experience, can help you transition into a financially secure and healthy future in the new normal that has emerged. Let us explore:
The importance of life insurance cannot be stressed enough — the Coronavirus pandemic has only brought back into the spotlight the age-old wisdom of securing one’s family’s financial future through a sizeable life insurance cover.
The COVID-19 virus has already killed almost 3.5 million people across the world. In India, around three lakh people have died due to the deadly virus. According to available data, nearly half the people who died of COVID-19 in India are younger than 60 years. It is natural then that most of those would be working individuals, in many cases the sole breadwinners of the family.
After they are gone, the financial future of their families would be taken care of if they had a sizeable life insurance cover. The proceeds from that cover can pay for the family’s future financial goals like higher education, marriage and so on. So, for a financially secure future, it is a must that you opt for a good life insurance policy.
The COVID-19 is essentially a health crisis, and then a financial one. Health in the new normal is of paramount importance. The pandemic has shown the world that emergency can strike at any time, and it can even put entire families at risk and needing medical care all at once. Hence, the old notions of a health insurance cover of around Rs 5-10 lakh hold no value in the new normal.
For a healthy and financially secure future, one needs to revisit this and get a cover that is not only adequate today, but also in the future with rising medical costs and newer and more expensive treatments becoming available. To be sure, a Rs 1 crore cover, which is now available at an affordable premium, could be the answer.
Creating an emergency fund
The job market, over the last one year, has seen a lot of shaking-up and is probably at its most volatile state, perhaps since Independence. The kind of job and salary cuts that we witnessed, this was not even seen in India during even the global financial crisis. The lesson here is that you cannot take your job for granted even if you are secure in your career right now, and you must ensure you are financially insulated from such a misfortune if it ever happens.
You can start to gather a nest egg that will be enough for you to survive for at least a few months. In fact, while a three-month worth of expenses as an emergency fund was deemed to be enough till a couple of years back, many financial advisors are now suggesting a relook at the number and at least double it in the new normal.
A big mistake that many people often do during a major crisis is that they completely go on the defensive and stop investing their money for their future. A part of it is driven by fear of losing their hard-earned money — which is natural given the kind of fall in equity markets we witnessed over the last year — while another major factor is the human tendency to oscillate between the twin emotions of greed and fear. However, one must not stop their investments at such trying times as often the best returns are made on the money invested during times of crisis. The remarkable recovery of the equity markets that we saw from the later part of the last year to this year is a testament to that fact.
Therefore, you must keep paying your insurance premiums, keep adding more money to your ULIP plans and keep all your other investments running. If you have taken the first three steps mentioned above, your present would be taken care of, and with this fourth step, your future would also be financially secure.
The author is CBO-GI at Policybazaar.com. Views expressed are that of the author.
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