BackDid you know | How to prepare for a financial emergency such as a job loss or sudden illness
Did you know | How to prepare for a financial emergency such as a job loss or sudden illness
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Imagine the present market turmoil leads to another slump in the market and you lose your job or your salary gets delayed due to a cash crunch in the company. Or you meet with an accident or sudden illness. Ideally, you wouldn’t want to imagine yourself in any of the above situations, but it’s best to be prepared for such eventualities. For at that time, while your regular source of income will dry up, your expenses, including loan instalments, insurance premiums and children’s school fees, will only pile up.
Here are some things you must ensure to help you tide over your problems at least for some time in case of an emergency.
Emergency fund
This should be the first target for an individual. You must build a fund that can help you fulfil commitments such as loan instalments, along with regular expenses, for at least six months.
Where to keep it: However, keeping too much money in your bank savings account is not advisable since returns are minimal. A majority of this buffer should be parked in short-term debt funds or liquid funds. Money from these funds can be withdrawn in 48-72 hours. You can also consider sweep-in accounts or flexi deposits.
Alternative sources: Having assets that can be easily liquidated, such as gold, or those against which loans can be taken, such as insurance policies, can also help. But using these may cost you. One, your savings plan for long-term goals may get derailed. Two, taking loans would mean paying an interest and ensuring repayment.
Cover yourself
You can also protect yourself against eventualities by taking adequate insurance covers. A personal accident cover will ensure that any disability, temporary or permanent, does not result in immediate income loss. You should also have adequate health insurance cover, which will take care of any hospitalization expense.
Additionally, there are a few companies in the market that offer insurance covers for job loss. But this cover comes as a rider with mortgage insurance products. The idea is to service loan instalments incase you are unable to pay. However, these covers are expensive. Some insurers cover job lost only due to merger or acquisition of a company and that too only for three months. Check the terms and conditions before opting for this rider.
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