I know the Title Sounds Scary (almost like a horror film). But this article could prove to be of utmost importance to almost all of us.
In our Basic Financial planning, we mainly focus on 3 risks
- Risk of Dying Early – We Buy a Term Plan to cover this risk.
- Risk of Living Too Long – We create a sufficient Retirement Wealth for ourselves to cover this risk.
- Risk of huge hospital Bills – We Cover ourselves with Mediclaim (Or Health Insurance) to cover this risk.
Apart from this, there is something called a “risk of living dead”, wherein a person is Alive, but he / she is in such a state that they cannot work and cannot earn any income. In such cases, neither they get money from their term plan nor health insurance (as health insurance only reimburse hospital expenses).
Such situation may occur due to 2 reasons
- Accident – Mr. John meets an accident and becomes handicapped. He is not able to work and his income stops.
2. Critical Illness – Ms. Nazma develops a critical illness (like Cancer, Brain Tumor etc). She is not be able to work and earn similar income as earlier.
Both these situations are termed as “The Risk of Living Dead”.
How do we manage the Financial risk associated with this?
- Mr. John could have bought an accident cover policy. This policy would cover not only accidental death, but also cover Permanent Total Disability, Permanent Partial Disability etc due to accident. It would give a lumpsum amount to Mr. John in case of a mishap due to accident. This Lumpsum amount can help to supplement the income that Mr. John is not able to earn now. The cover amount should be ideally 10 times of the annual income of Mr. John.
- Ms. Nazma could have bought a Critical Illness Cover Policy. This policy would cover all the major critical illnesses. It would give a lumpsum amount to the policyholder on the diagnosis of the critical illness. This Lumpsum amount can help to supplement the income that Ms. Nazma is not able to earn now. As soon as the amount is paid, the policy ceases. The cover amount should be ideally 10 times of the annual income of Ms. Nazma.
How to Choose the Right Company and Policy ?
There are several insurance companies which offer accident cover and critical illness policy . Below Factors should be considered before buying the policy :
- Scope of Coverage – What all Critical illnesses are covered, what all disabilities are covered.
- Exclusions – Are there any exclusions ?
- Claim Settlement Ratio
- Ease of Service
While covering “The Risk of Living Dead” is extremely important, it could be a good idea to seek professional guidance if there is a confusion. The biggest mistake would be to procrastinate the same. The people who are suffering from these, had never thought in their dreams that this could ever happen to them.
Its always better to be safe than sorry !!
The Author Prof. Saurabh Bajaj (BE, MBA, FRM, CFGP, AFGP) is CEO with Nidhi Investments, Mumbai. His articles have a readership from 78 Countries across the Globe. He may be contacted on CEO@nidhiinvestments.com if you have any questions.
(The views mentioned in the article are personal opinion of the author)