Mr. Rahul Arora is a software professional in his early 40s. He works for a well known MNC and draws around Rs 1,00,000/- p.m. He is the single income earner of the family and has a home maker wife and two school going kids. He has a reasonably good health profile.
One day he suddenly collapses in office and is rushed to the nearby hospital by his colleagues. The diagnosis-he has suffered a brain haemorrhage due to which he has had a partial paralytic stroke.
How do people react when they hear of such incidents happening around them to friends, relatives, colleagues and acquaintances?
First reaction : Sympathy for the person and his family
The second : Fear.”What if it happens to me too?”
But then they convince themselves. ”Only a handful of unfortunate people go through this, so it is not likely to happen to me”.
As much as we would like to believe this, the statistics differ. Today, due to our unhealthy and stressful lifestyles, the percentage of people contracting critical illnesses has increased dramatically. The good part is that due to medical advancement, the successful recovery rates have also increased. However, the treatment is extremely expensive and given that medical inflation in our country is significantly higher than economic inflation, it can wipe out a major portion of our life savings.
While timely treatment and successful recovery is priority, financial preparedness is also essential. It would ensure that one can focus only on getting better without having to worry about the costs involved.
Buying a critical illness cover for the family would help take care of this.
What is a critical illness cover?
A critical illness cover or policy reimburses the policy holder for the covered amount if he or she is diagnosed as suffering from any of the specified illness like heart attack, cancer, kidney failure, stroke, a major organ transplant etc. One can cover himself or herself for such risks either by buying a stand-alone critical illness policy or by taking an additional cover for the same with the main health policy. There are a variety of such policies offered by leading life/general insurance companies with specific benefits like hospitalization benefit, surgical benefit, post hospitalization benefit etc. You can choose one based on your requirement.
You can choose one based on your requirement. And in case you do not have one already, please avail of a critical illness policy right away when you are in a good health condition.
Because, as it is rightly said ‘Health Insurance can be bought only when you do not need it, because when you really need it, you are no longer eligible to get it’.
The holiday season is around the corner with the schools about to break for summer vacations. Most families are ready to embark on that much awaited trip which has been eagerly and meticulously planned. Believe it or not, managing your finances which is perceived to be a complicated affair in fact requires just the same kind of planning!
- What should be the destination?
Your investment objective – First you have to decide what are the milestones you have to save for – like buying a house, childrens’ education and marriage or retirement.
- How long should your trip be?
Your investment horizon – This would mainly depend on the investment objective and factors like the age of the investor, details of his dependents etc.
- What should you pack?
The type of investments you should make in various avenues like equity, debt schemes, govt. securities. This would be determined by the person’s personal risk appetite, his age, current job profile and the investment horizon. Any investment plan you choose is a trade-off between risk and reward. Greater the risk you are willing to assume, higher the reward.
- How much would this trip cost?
How much money would you have to save regularly/set aside to reach your desired investment objectives.
- How much cash should you carry along with you?
Your short term liquidity requirements – Though liquid investment schemes like a savings a/c is very convenient as cash can be withdrawn immediately, these have a much lower yield compared to less liquid investments. Hence it is advisable to just keep the amount which you might require in an emergency as cash.
- Is your holiday likely to get extended for some reason?
Most people form a rough idea of how long they are likely to live based on the average life span. It is important to keep in mind and provide for the risk of running out of savings if one lives too long.
Further to the previous article (Emergence of banks in India as financial planning outfits), whom should you hand over the task of managing your investments??
Your bank – with whom you have been dealing for years for your banking transactions and which now has a full-fledged wealth management division too (which they also keep aggressively advertising about every time you visit them).
One of the Wealth Management/Broking firms or independent financial planners who specialize in this area.
Pros and cons of having your bank as your financial planner
- Higher credibility/accountability The relationship/wealth manager dealing with you represents the organization which has a good brand visibility and is perceived to have more accountability compared to an independent advisor/agent as the client can always approach the organization in case of a problem/grievance.
- Ease of transacting – The Relationship Manager usually act as a one stop shop for the client and goes an extra mile and even take care of the banking related issues of the client.
- Greater comfort level – The client feels more comfortable revealing his financial health to an employee/ representative of the bank with whom he has been banking for a long time.
- Better logistics support – Financial planning divisions of banks are equipped with a good research team, financial planning tracking software, infrastructure etc. which makes the process simpler and ensures smooth functioning.
Now, the concerns –
- Increased competition among banks has resulted in Relationship Managers being given stiff sales targets by their employers due to which they may be forced to be more sales focused than customer focused.
- They have to function within certain guidelines set by their seniors/ organization which could sometimes come in the way of their exercising their independent professional judgment while working on the client’s portfolio.
- Most of the financial planning exercise in banks is more person driven than process driven and the client usually looks upon the Relationship Manager as a trusted advisor .High attrition rates among them, with all banks trying to acquire the best of the lot leads to the clients having to deal with a new relationship manager frequently, causing customer dissatisfaction.