Of late, I’ve been thinking quite a bit on what I’d do if the following scenario were to happen.
Suppose your ability to earn a regular income is hampered because you suffer a disability due to whatever reason (say due to an accident). How would you plan ahead and financially mitigate for this scenario? Remember, the younger you are the longer is the time frame that you’d need to plan for.
- The best solution for such a scenario would be long-term disability insurance — insurance that, should you become disabled, replaces your income to a certain extent each month for a significant length of time. I’ve seen only one such disability insurance policy on offer in India: Tata AIG’s Secured Future Plan. As I’ve written before, the insurance payout scenario is excellent: at the highest level you get Rs 35,000 per month guaranteed for 20 years. I’m yet to go through the policy wording.
- The other option is to opt for a regular personal accident plan which pays out a lumpsum in the event of a disability. The onus would then be on you to manage this money such that it can generate a steady income stream. I did peruse few such plans but the payout scenarios were quite complex.
What would you recommend? Are there other options that I could look at? And how have you planned for this scenario?
We generally purchase life insurance as a means for protecting our dependents from economic hardship. While most non-term life insurance policies such as endowment policies, whole-life policies, and such payout without much hassle, the same isn’t true of term life insurance policies — especially the ones issued by private insurers. How would you plan ahead and mitigate for such a scenario where your term life insurance doesn’t payout to your dependents?
You, of course, wouldn’t be there to witness this, but the purpose behind my question is to find out if planning for this financial risk is a good idea and if it is how would you go about it?
Personally, I think it’s a good idea to plan for this financial risk. The only options that I can think of are:
- Track your net worth and ensure that it grows steadily. Your dependents could liquidate your net worth and plan accordingly. But for most of us, our net worth wouldn’t be remotely close to our insurance coverage. So, I’m not sure if this is even a valid idea.
What do you think?
Suppose you issue a check. You later discover that there isn’t sufficient balance in your account to honor the check but the check has already come up for presentation. How would you plan ahead to mitigate this scenario?
The only option that I can think of is to avail an “overdraft” facility on your account. In the past, I’ve actively advocated against availing this facility, but if you’re mature with your finances, an overdraft could be a reasonable fallback mechanism.
Is there any other fallback mechanism that you can think of? Also, do you know if the overdraft facility can be restricted to be exercised only against checks and not at the ATM/PoS?
When I first asked “What’s Your Fallback?”, it was meant to be a one-off topic. But the more I think about this question, the more questions it leads to about one’s personal finances: How would you deal with the financial setbacks that happen in your day to day life?
A case in point:
Health Insurance [in most cases] is supposed to be a cashless facility. But looking at recent events, there’s really no guarantee and you might have to pay the bills upfront. So, what financial fallback mechanisms should one have in place to deal with such an event?
A couple of options that I could think of:
- A separate emergency fund meant solely for such major emergencies. This would be on top of your regular emergency fund and can be replenished once the claims are settled. I’m not sure if this is a good idea.
- Credit Cards. Would push you into temporary debt but can be paid off once the claims are settled.
What would you suggest?