“Disaster management is not just the responsibility of civic authorities, but also of families who must take care of their finances”
Manik Dey, 55, a manager with Air India was a bit too optimistic in life. Dey hopes that nobody should suffer like him and pay through the nose the way he did. Floods ravaged his home in the Air India colony, Kalina, north west Mumbai in 1991, 1997 and 2000. Each time the loss to him was around Rs 50,000. In 2005, the July 26 deluge left him poorer by Rs 1 lakh. “I always thought that flooding would never happen the next time around. Maybe I was too optimistic. I hope people learn from my tragedy. We cannot prevent tragedies and misfortune. But at least, if we are financially prepared, our loss can be mitigated,” says Dey who has now shifted to a second floor home and is thinking of buying insurance.
Dey’s neighbour A V Pillai, 47, superintendent service engineer in Air India, too lost a lot of money in the 2000 floods and is now a tad wiser. “People should have an emergency financial kit,” he says. “We did not take insurance because there was not much awareness. If LIC or some other insurance company had held road shows or awareness camps, it would have motivated us. After the Tuesday bomb blasts, I feel all insurance companies should raise awareness about the fallibility of life,” says Pillai.
The July 11 Mumbai train blasts claimed 200 lives and left some 800 injured. Some of those affected will suddenly become dependents, relying on others to earn a living. Coping with the emotional after-effects of a calamity is difficult to start with, but can be especially disastrous when the affected family faces a shaky financial future. While one cannot always prevent disasters and misfortunes in life, one can always take pre-emptive steps to mitigate post-disaster traumas. To start with, every one must put in place an emergency financial plan to deal with unexpected calamities. This could help even in other unexpected emergencies or misfortunes (such as losing one’s job or a major illness). Financial planners and risk management experts are unanimous that an emergency financial plan can and should be made by all those who are earning and even those who are retired or senior citizens.
While situations and the financial background of every individual may differ based on age and experience, emergency financial planning can be divided into three broad categories:
– A single bread earner having parents or dependent family members
– A married person with dependant wife/husband, children and or parents
– A young, earning person without dependents
According to financial planner Sujata Kabraji, if a person is the only earning member of his or her family, and is unmarried but has parents, an emergency plan should provide liquidity for three to six months of household expenses, either in the form of bank deposits or liquid funds, and an insurance policy which is of sufficient value so as to take care of his parents. Equally, the person should keep a trusted friend or an advisor appraised. It would help if that person has some financial acumen. The person should also ensure that all investments are either in joint names or have a nomination in place and that there should be a will duly validated. It is mandatory that the person’s parents should always be kept in the picture of all the investments that have been made.
In case a person is married and has dependent wife and children, financial planning is all the more crucial. According to Gaurav Mashruwala, a certified financial planner, such persons should have contingency planning, risk management, liquidity and have an updated nomination for various assets and a will. Contingency planning essentially would mean making arrangements for three months of household budget. Risk management is ensuring that health and life insurance is in place and that there are no lapses in premium payments. Disability insurance should never be neglected and always included as a part of any insurance plan. Additionally, having at least 15-20% of invested assets in liquid form (like mutual funds, fixed deposits and shares) would ensure the availability of liquid funds.
Updated nomination and the existence of a will is of crucial importance whether the person is single or married. Even if a person has nominated someone, it does not automatically mean that the concerned persons will get to own that asset. “Nomination is the right to receive, not the right to own. For example, if the person has nominated his wife in various assets (be it bank deposits, shares, etc), the wife gets the right to receive the asset. But, in case there is no will, any other family member, for example his mother, has the right to take the matter to the court. A written will ensures that the asset goes to the person one desires. And yes, a will need not be drafted only with a help of a lawyer. One can draft it in their own handwriting and the proforma is simple and can be easily accessed on the net. A handwritten will, attested by two persons, preferably one of them the person’s doctor, would ensure that the will would not be challenged.
If a person dies intestate, then the possibility of legal wrangling and division of assets under succession acts become a reality. Mashruwala says that soon after a person’s marriage, it is essential that the couple sit down and make a list of assets, especially the ones created before marriage. “Hiding the assets, especially the one that a person has before marriage would invariably cause complications in case of emergencies. The worst part is that a person has assets but is unable to use the assets even for his or her treatment because he or she has not disclosed it to his spouse and family and, being critically injured, is unable to disclose it either,” says Mashruwala. Another certified financial planner, Kartik Jhaveri, says while planning for an insurance cover one needs to factor in the inflation rate. Also, Jhaveri strongly advises on not allowing insurance agents to railroad you in buying polices you don’t need. In the case of senior citizens, emergency planning should factor around investment in instruments that would ensure liquid cash flow which would be of use during medical emergencies, says Jhaveri.
Wills are even more important as people age and the next of kin must know where to find the paperwork. One should try to ensure regular monthly income so that if either spouse is no longer around, at least monetarily, the surviving spouse does suffer financially, advises Kabraji.
It is not enough to just do the paperwork for emergency planning. What is of equal importance is that policy–life and medical–copies need to kept in either a locker or with a trusted person in another location. A copy of the original will should be kept in separate locations. In fact, all papers which indicate ownership of any asset, that is marriage certificates, PAN cards, etc, should be notarised with one copy kept in a safe, separate location. “The choice of whether it should be in a locker or with a trusted person is a personal choice,” adds Kabraji. EMERGENCY FINANCIAL KIT Evaluate your cash inflow (income) Evaluate financial goals Create a contingency fund Ensure adequate insurance Assess liquidity needs Nominate survivors and draw up a will