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This article was first published 7 years ago  » Getahead » How to prepare for financial emergencies

How to prepare for financial emergencies

By Shiv Maheshwari
April 30, 2016 17:44 IST
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Shiv Maheshwari, executive vice president and head of agency, Max Life Insurance offers a few tips on how to be prepared for the uncertainties that may come our way.

For many of us, life maybe on cruise control right now. But life with its uncertainties does not always follow a planned path.

This is why you need to be prepared not just for different financial needs and financial vagaries that you may experience at different stages in life. It is thus financially prudent to plan and be prepared in advance.

Protecting through life insurance: the first step of a financial plan

The very first step is to make a financial plan by assessing the needs of your entire family including yourself not just for now but for the future as well.

For the loss of life of the breadwinner in the family, life insurance is the only safety net that can save the family from financial duress. Hence, before we start saving for the future, we should ensure financial continuity by protecting ourselves against any eventuality.

In addition, it is important to classify short term and long term needs and allocate separate financial products for each need.

The biggest mistake people make is to dip into their corpus for long-term needs for immediate requirements. Investing in a life insurance policy helps to build the habit of disciplined savings to meet various long-term needs.

Never undermine the need to plan and prepare for retirement

It is important to take into consideration the fact that your post retirement life may be longer than you expect and thus, you should have enough funds to get through your retirement comfortably independently.

When people retire they experience a reduction in income -- a pension makes up for some of this loss of income in retirement. Life insurers today provide pension plans that you can invest in early on to create a retirement corpus sufficient to help you and your spouse maintain your lifestyle.

Without good retirement planning, you may be forced to liquidate their hard earned assets to pay for expenses during their retirement years. This could prevent you from leaving a financial legacy for their loved ones or make them a financial burden to their family in their old age.

Decide your life cover keeping all your liabilities in mind

While looking to purchase a life insurance policy, you must take into consideration factors such as age, income, the standard of living you maintain and aspire for and the financial responsibilities you currently have.

You should also remember to account for how these expenses will escalate with every passing year and the total impact this will have on your needs at various life stages. It is important to add mortgage payments and other loans while deciding on the sum assured you need to have.

When looking to purchase life insurance policies, it is advisable to ensure that you have a cumulative death benefit of at least 8 to 10 times your annual income.

This will help in providing financial continuity, in taking care of large liabilities, expenses for children’s education or those associated with retirement. You should also consider adding riders to your overall policy as they are an affordable way of increasing the level of protection at a fairly low cost.

Making an informed decision

There is no shortage of information both online and offline around life insurance solutions. However, people choose to either skip reading these articles, because they believe it is not worth the time to understand the asset class. Many prefer the alternative option of taking the advice of a financial planner instead.

A financial planner is trained to assess the actual needs, wants and aspirations of an individual based on various criteria and then chalks out a financial plan.

While planning for the future, it is essential to keep in mind long term goals and thus the need to insure yourself to obtain financial peace of mind.

It is important to start saving for the long term early in life to ensure that you are adequately insured to meet all your life stage goals and future expenses.

By starting early, a person can ensure a strong financial future for themselves and their family by taking simple steps. It is therefore important to be prepared as meeting your expenses and goals in the future is ultimately your responsibility as you are the architect of your financial future.

Illustration: Uttam Ghosh/

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Shiv Maheshwari