Money Matters: Cut that calamity risk

Not to forget, the earthquake in Nepal, the most recent example of the pain and problems of people struck by disaster, where they are still struggling to overcome the loss of their loved ones and their homes.

Jul 10, 2015 04:07 IST others Mahalakshmi Hariharan |

A natural disaster can seriously affect anyone, anywhere. Natural disasters are events that occur outside human control, for which no one can be held responsible. Such mishaps can cause serious loss of life or property damage, leaving the individual and his/her family in pain, not just physically, but emotionally and financially as well.
 
In the last few years, India has gone through a series of calamities, mainly due to weather conditions, causing massive loss to lives, homes and property. Tsunamis, droughts, floods, cyclones, avalanches, landslides brought on by torrential rains and snowstorms have posed as the greatest threats to our country. That apart, we have also been vulnerable to frequent summer dust storms and earthquakes that have caused extensive property damage. People have lost their lives, financial assets and property, leaving behind families in turmoil.
 
Not to forget, the earthquake in Nepal, the most recent example of the pain and problems of people struck by disaster, where they are still struggling to overcome the loss of their loved ones and their homes. There are certainly financial lessons to be learnt from such calamities. Financial woes can be equally devastating. Take a look at how you can protect your finances and be well prepared in case of such misfortunes.
 
Just as you would have chalked out your career path or your life, it is equally important to chalk out a financial plan as well, in advance, to protect your financial well-being from any kind of unfortunate event. It’s true that we have no control over such calamities, but we can always guard or rather protect ourselves and our families against being financially hit in case of a disaster.
 
Says CA Rishabh Parakh, ‎Founder & Chief Gardener of Money Plant Consulting, “It is very important to guard yourself against any natural calamity because that can completely wipe out all your belongings. You could also be wiped out financially. In a worst-case scenario, these disasters may even bring injuries which can make one physically unfit to work, where your entire life will go haywire if you do not have a sound financial back up.”
 
In that case, how do you protect your family and self?
 
Explains Melvin Joseph, Certified Financial Planner (CFP) at Finvin Financial Planners, “It is better to opt for insurance to cover yourself against such calamities. This insurance can come handy in case of any unexpected event like the one that happened in Bihar and Nepal recently. If we are not prepared, you may have to incur huge expenses from your pocket, and this can upset your personal financial planning. But by insuring, you are transferring such risks to the insurance company.”
 
Financial experts therefore advise that it is crucial to have a home insurance, a personal accident cover, health insurance and a life insurance in your kitty. That apart, along with these financial products, it is also important to have an emergency fund to provide for least six months of household expenses.
 
If you look at the trend in India, people own expensive homes worth lakhs or even crores, but do not possess a home insurance. Remember, when calamity strikes, your property gets affected first.
 
For instance, if you own a 3 BHK, you can insure your house against any natural disaster or fire or other peril. You can insure the cost of reconstructing your house and not for the market value it commands. So you can cover your house for, say, Rs 50 lakhs and also include contents, say, worth Rs 15 or 20 lakhs. This whole process will cost not more than Rs 2,000 as a premium.  The cost of construction varies from time to time, depending on the market. Currently it stands at Rs 1,500 to Rs 3,000 per sq feet.
 
Further explains Parakh, “Many a times, people do buy a cover to protect their home against fire, lightning, storms or even floods. Any cover against an earthquake generally comes as an add-on due to the fact that it depends primarily on the geographical location your house falls in. You can protect your house by buying an overall householders’ package policy, which, apart from protecting your house from fire, also protects you from burglary or any other mechanical or electrical breakdowns.”
 
Along with a home insurance, it is also essential to have a personal accident policy in place, as any natural disaster could seriously injure or disable a person for life. “Personal accident policies help to provide compensation against any such calamity having a bearing on your work conditions. These plans cover death, permanent disability, permanent partial disability and temporary total disability,” says Parakh, adding that this plan also comes as part of a household policy, but one can always buy it separately after analyzing the pros and cons of buying a customized product than a ready-made product.
 
Third and also equally important is having a life insurance. Life is uncertain and losing life in a natural calamity can leave your family shattered.
 
Parakh advises, to offset this, always make sure to have an adequate insurance cover to protect your family even in your absence. “Buy a good term insurance plan to meet your financial needs based on your overall comprehensive financial planning.”
 
A term insurance will provide the sum insured to the nominee in case of death of the bread winner of the family.
 
“Having a health insurance is equally important as it will reimburse the actual expenses incurred on hospitalization. If all these insurance policies are in place, you can lead a peaceful life. Always think that the premium paid for these policies are a small price for the peace of mind you enjoy,” says Joseph, adding that one can start investing for other goals after having all these policies in place. “Investing and savings should start at the earliest in one’s life to enjoy the benefit of compounding.”
 
Disasters cannot be avoided, we cannot predict them too, but we should always be prepared. As George Washington rightly said, “To be prepared for war is one of the most effective means of preserving peace.”
 
Quick Takeaways:
  • Regularly review and monitor all your insurance policies and coverage
  • Insurance Audit: Firstly, you should do a thorough insurance audit to calculate the amount of insurance needed to protect your family in case of any unfortunate event that could affect you and your family. Next, identify the need for buying adequate cover for home insurance, life insurance and personal accident policy.
  • Check inclusions and exclusions: The biggest disaster would be a situation when, despite having an insurance plan in place, one doesn’t get the cover or gets an insufficient cover. This happens mostly because of the various exclusions as attached to one’s insurance plan. So, please check your plan before buying a cover to know what it exactly covers!
  • Review by a financial planner: If required, get your insurance audit done by an ethical financial planner so that you can buy a product based on your family’s health and life insurance needs.
Prepare an inventory of all your possessions and belongings
  • The first thing before buying a cover for any probable disaster is to make a list of an inventory of all the assets and personal belongings. It will be required to assess what’s been lost at a later stage and this will help during the process of insurance claim. You can also digitally record it either by a video shoot or photos for your own reference. You also need to keep a backup of this written/digital record for ready reference, and don’t forget to update it whenever you make any major purchases.
  • Handy information for all your policies! You should prepare a list of all the policies you have and make note of the policy number, telephone numbers, email ids and claim settlement process. Give it to a trusted family member or a friend to be stored at a distant place.
  • Some of the other documents you need to have a backup include all your insurance policies, your property titles, deeds, registration papers for your car and other assets, tax and financial records of the last eight years, your originals -- will or power of attorney, if any, and details of all your liabilities such as your credit card statements/ home loan/personal loans, details of jewellery and other personal belongings, demat account details of stocks/ bonds/mutual funds and any other document having a financial bearing.

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