Category: Emergency Fund

Health life and emergency fund allocation

Health life and emergency fund allocation

Why should you have an emergency fund?

Think of it like the fire extinguisher you keep in your house; ideally, you’ll never need to use it—but when you actually have to, you’re so glad it’s there. The same goes with an emergency fund.

Having an emergency fund means that you do have room to breathe. You don’t have to completely panic if your car breaks down or if you lose your job or if you suddenly need to make repairs to your house . Instead of having to find some way to squeeze those expenses onto a credit card or ask a friend for some money to help, you can just pay the bill – no worries.Deposit money in there and don’t even look at the balance until an actual emergency occurs.

In Suze Orman’s article on Emergency fund ,

She advices that everyone should have an 8 month income reserve atleast  for an emergency fund.

Most people want  to have an emergency fund, but then you talk yourself out of it before you ever begin saving. Because you know you can’t just snap your fingers and have plenty saved up, or you think you can’t afford to start saving now.  Suze Orman goes on to tell how this can be done in few simple steps. Start with small numbers per week / month / day.  Also, you can set up an automatic savings plan to sweep that money straight out of your salary account and into your savings account that you’re using for an emergency fund.

An emergency medical fund is equally important. The money can be used to bridge the gap between the expense incurred and the claim paid by the insurer. With rising medical inflation, it is important to create a corpus exclusively for meeting any healthcare eventuality.

The new product called Health ULIP helps with this (Birla Sunlife Saral Life, Health Saver ICICI Prudential etc) ) –

A health Ulip is a combination of two insurance plans—a normal mediclaim policy and a market-linked investment plan. The mediclaim covers hospitalisation expenses, while the market-linked plan builds a corpus for you. This money can be withdrawn by the policyholder for meeting his healthcare expenses or if his mediclaim policy does not cover his hospital bill fully. As in the case of a regular Ulip, the policyholder can choose the investment option for the health Ulip premium.

The corpus created by the Ulip can also be used for treatment of diseases not covered by the mediclaim policy. For instance, if the policyholder is hospitalised for a pre-existing disease before the waiting period, the mediclaim policy will not cover the expenses. The Ulip, however, provides a comprehensive cover to the customer by allowing reimbursement for medical expenses not covered under his health plan.

A policyholder needs to renew his health insurance every year. If he fails to do so within the stipulated period, the policy can lapse and the policyholder can lose all the accumulated benefits.

This doesn’t happen in case of a health Ulip. If, for some reason, a policyholder does not renew it, the insurer deducts the mediclaim premium from the corpus value. Thus, the continuation of the policy is never at risk.

Critical illness plans –

Sticking to a healthy diet and following an exercise regime could keep many such unwanted ailments at bay. But, sometimes due to hereditary reasons and mostly with age, the chance of developing a life threatening life-style disease increases. Unlike minor ailments, the treatment in such cases could be a financial drain on the family as the costs may run into several lakhs.

If you already hold a health insurance plan (Mediclaim or Family Floater), maybe it’s time to consider creating a second financial buffer through critical illness health insurance (CI) plan. It is often suggested that one buy a CI plan at around 40, however buying early still helps as premiums are lower

A CI cover provides a lump sum benefit, which can pay for the cost of care and treatment, recuperation expense and even pay off any debt if taken. Regardless of your hospital expenses, the insurer pays the full sum insured.

Most insurers cover 8 to 20 major critical illnesses or even more. Some of these are cancer, coronary artery bypass surgery, heart attack, stroke, kidney failure, aorta surgery, heart valve replacement, major organ transplant and paralysis. The coverage amount can be anywhere from Rs1 lakh upwards.

The waiting period

One distinguishing feature of these plans is that the insured person needs to survive for 30 successive days (few have zero or 28 days) after the diagnosis of the critical illness in order to make the claim. Further, there is a 90 days waiting period at the start of the policy. Any critical illness diagnosed within the first 90 days and death within 30 days

following the diagnosis of the critical illness will not be generally covered.

In life insurance companies, CI is available as a separate plan or it can be added as a

rider to the base plan. When added as a rider to the base plan, there can be two situations – One, the base policy continues after the CI rider is used and second where the base policy ends (premium could be lower than in the first situation) if the CI rider is used anytime during the term.

There are countless circumstances where emergency savings come in handy. Here are a few examples:

  1. Job loss
  2. Home repairs
  3. Car repairs
  4. Natural disaster
  5. Death in the family
  6. Large medical bill

We all have different goals in life, some short-term and some long-term. It’s important to have savings accounts that match those goals. In addition, having an emergency savings account is crucial to making sure you stay on track with those goals and making sure that an unexpected expenses doesn’t impede your progress.

A health savings account may not be something we all think about, but it’s important to have one. If you don’t have access to either of those accounts, it’s still important to save for medical expenses, even if it’s just in a regular savings account.

No matter where you choose to tuck your money away or what you allocate it for, one important point remains across the board: save as much as you possibly can. It’s better to have it waiting there when, and if, you need it than to rack up debt for extra expenses.

Sneha Ramamurthy

Dilzer Consultants Pvt Ltd