When Sunil Kumar Sinha, 34, lost his left hand in an accident, he felt completely desolate. An engineer by profession, Sinha had got married recently, was planning to purchase an apartment soon and then there were other financial goals that he wanted to attain in the years to come. But all seemed lost now.
A sad story that can happen to any of us. In advanced countries, there are support systems for people like Sinha, either in the form of direct financial assistance or in terms of identification of opportunities.
For instance, in New Zealand, if you are above 16 years of age and have been permanently and severely incapacitated, the government has schemes under the head of disability allowance and sickness benefits.
However, in India, there is no protection available for such people. Also, with the rising cost of medical treatment, it is a huge financial hit that one has to incur in case of an unfortunate event. Thus, it is always prudent to plan for such issues in advance.
In order to plan for your financial support in case of disability you need to look into:
Cost of medical treatment: First, you should be aware of the insurance cover that your employer provides for you and your family. If this cover is not enough, you need to buy additional cover.
Ideally, the total insurance should be to the tune of Rs 300,000 to Rs 500,000 per head. The expense is also not too much. For a 30-year old, health cover of Rs 300,000 would cost only about Rs 3,000 per year. Of course, the premiums are higher for older citizens.
It is also important that when you are taking additional cover, mention the existing cover from your employer in the application form. Most insurance agents may ask you not to do it or may not even bring up the subject. But this is important because such hidden facts may allow the insurance company to reject your claim at the time of need.
Transfer of other expenses: If your life insurance policies offer premium waiver benefit, take it. Essentially, these waivers are offered in case you are incapacitated. Here, the insurance company, on your behalf, will pay for the premiums, either till the disability continues or the end of the policy term, whichever comes earlier.
The cost of such riders is not very high. For a 30-year old taking a policy of Rs 50 lakh (Rs 5 million) for 20 years, the premium waiver option comes for a mere Rs 490 a year.
Compensation: While expenses covered above are useful, they do not help in running a household. Here too, there are some good policies available. Almost all policies have a critical illness plan as well as a disability rider.
If you are diagnosed with critical illness like paralysis, stroke, heart attack etc, you will get the entire assured sum. For a 30-year old, a critical illness policy of Rs 10 lakh (Rs 1 million) would cost Rs 3,000 a year.
Likewise, with the disability benefit rider with your life insurance, the company (depending on type of plan) will pay you regular instalments. For instance, Reliance Life Insurance pays you basic sum assured in ten equal annual instalments.
However, while all these policies sound great, it is important to remember that it is cheaper to create safety nets through investment rather than insurance plans. So, it would be great if you can get rid of such insurance policies as you grow older because the premiums are much higher.
That is, a Rs 10 lakh (Rs 1 million) health cover costs just Rs 3,000 for a 30-year old but the same policy costs Rs 30,000 for a 55-plus person. It is the same case with other policies as well. Moreover, it is at this later age where your chances of such illness or disabilities are higher.
If you plan your finances well, you will be able to knock off the critical illness cover much before your retirement. Later, if need be, you can get rid of other covers as well. The idea is to get rid of these covers as soon as possible. This is because you save the premiums which can be directly used to invest in income generating assets.
Also, since these premiums get higher with age, it becomes particularly difficult to pay them during retirement years when income is practically zero.
But remember, this can only be achieved if you have planned your finances properly and amassed enough resources to take care of any contingency.
To do list:
- Buy insurance of Rs 3 lakh to 5 lakh per person
- Opt for the disability rider in a health plan
- Get a premium waiver rider in the health plan
- Get a critical illness policy
The writer is director, Acorn Wealth
