money matters for self employed
Protection Plans

There are three areas of uncertainty in life that you need to make provisions for to avoid financial shock in the event of the unfortunate happening. We're talking about life insurance, health insurance and contingency reserve. If you are caught by these events unprepared the financial costs of dealing with them can be tremendous but thankfully sufficient provisions can be made without hurting your finances, if you act in time.

Life Insurance 

Making money and investing it is exciting for everyone but protecting the financial security of your loved ones in the event of your passing away may not be thrilling for many young people. However it could be one of the most responsible decisions you ever make. Your income earning potential is an asset worth protecting. You need life insurance if you have debts or mortgages, children and other dependents including spouse, parents and siblings.

Determine how much cover you would require. This will depend on how much money your dependents will require until they have found an alternative source of income to support themselves. Shop around for the best premium rates from trustworthy insurance providers for a suitable term cover. Term covers only provide death benefit and are the cheapest ones. We suggest that you do not club insurance and investment goals by choosing traditional plans or ULIPs.

A number of factors affect life insurance premiums. These include:

  • The age you purchase your policy. The older you are, more expensive the premiums.
  • Your overall health. Life insurance companies typically ask you about your medical history, request access to medical records and even obtain blood and urine samples for testing.
  • Pre-existing and/or chronic health problems, such as diabetes, heart disease, cancer or sexually transmitted diseases may prevent you from getting life insurance or place you in a high-risk pool at greater cost.
  • Poor health habits, such as smoking and excessive drinking. Be aware that insurance companies may look back and consider these behaviors for the past five years.
  • Engaging in dangerous hobbies, such as skydiving, skiing or rock climbing.
  • Your geographic area. Life insurance companies have access to regional data that document mortality rates and life expectancy, and they use that data to calculate the rates they offer.

Some of these factors are in your control. Others are a function of your genetics, occupation or location. Either way, it's important for you to be educated on these issues so that you can make the best insurance decisions to fit your life.

Health Insurance  

The next logical step is a medical insurance policy or the Mediclaim. You may be feeling great and probably rarely go to the doctor. As pessimistic as it sounds, regardless of your age or present state of health, you can become ill, or be in an accident that lands you in hospital at significant cost. Being insured gives you confidence knowing that you'll have access to medical services and potentially higher quality health care, if and when it's needed. Many organizations give this as a benefit to employees. But do check yours. In any case, taking one will hold you in good stead, should you switch a job. Now, there are tax benefits to taking a medical policy for your dependent parents too.

Health insurance provides money for hospitalization expenses. This type is also called Mediclaim. They do not cover pre-existing illnesses until four years of obtaining a policy. You might also want to top your Mediclaim with a Critical Illness Cover.

You can cover the entire family under a family floater plan. You can cover yourself, spouse, children (over 3 months and under 18 years of age) under a common sum assured and a single premium. Some insurers cover dependant parents and in-laws (less than 75 years of age) under the same policy.

There are several companies providing health insurance in India, of which 3 are pure health insurance companies.

Contingency Fund

There will be times when unexpected needs creep up no matter how well you budget. You might require a dentist's appointment, the refrigerator or washing machine fails to work, vehicle breaks down or you might have to send your child on a school trip. Or if you are the only earning member in the family and you fell ill for a long duration the family's income would be adversely affected. In such circumstances unless you have extra money left in liquid savings you would have a hard time making ends meet without having to borrow.   

Create a contingency fund to use in such emergencies. It will cushion financial shock from unexpected expenses. This can be done by allocating about 6 months living expenses in a savings account which you can readily access in time of need. Replenish the fund as when you get income. As your household income and expenses increase remember to increase the fund as well.


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