Long ago, I had written two articles on this subject. Some of the points are still very relevant:
ARTICLE 1: WRITTEN IN 2008
If disaster strikes! Are you prepared
The month of July is the month of filing income tax return for salaried individuals. It is also the month of heavy rains in most parts of the country. But for most in Mumbai, it brings back the horrible memories of the 26th July, 2005 when heavy rains across the city coupled with high tide in the Arabian Sea resulted in many parts of suburban Mumbai flooded with water for days. As if the Rain Gods were angry with the commercial capital of India. It was a nightmarish experience for many. A disaster of this scale affected many lives in one of the most populated cities. Talking about disasters also brings sad memories of two other days – both 26th of different months and different years. One was 26th January, 2001 and the other was 26th December, 2004. The first is known to Gujarat as one of the worst earthquakes in many years, whereas the other is known to the South-Eastern Coasts of the country as Tsunami. We have only talked about some of the natural disasters – there have been many more natural and some man-made tragedies.
Many lost their valuables, homes of many were destroyed, and the worst of all, some also lost lives or limbs. Such tragedy could not have been prevented. However, in the world of financial planning, there is a protection against the losses in such scenarios. Such protection is popularly known as insurance. Insurance can be taken against such losses arising on account of natural or man-made tragedies. In the current market, there are insurance policies available to guard one against loss of life, loss of limbs, expenses for treatment, loss of property, etc. It is advisable for all to have such protection to ensure that at least the financial loss is partly, if not fully, compensated. Emotional loss cannot, however, be compensated.
Well, a lot has been written about the importance of insurance in the subject of financial planning. The idea here is not to go into the details of the insurance options available. Our objective is to bring one’s attention to another possible loss in case of a disaster, i.e. loss of documents. When someone loses the home on account of an earthquake or fire, the documents may also get destroyed. Even if one has adequate insurance, in the absence of documents, the hardship would only worsen. The death of the main bread-earner could only compound the problems as in many families, the main earner also happens to keep track of all the investments and insurance. The family is unaware of the details in many cases. The insurance policy was taken to compensate the family in case of such an eventuality. But if the documents are lost, the protection may become useless.
What can be done in such a case?First of all, convert all the documents in electronic format. Let us look at various important needs. The first need could be immediate liquidity, or how much money can be readily available.
Bank Account:This is the urgent need. In case of a major loss, the money in bank could be the first source of instant cash. The good part is, since the bank also maintains the books of accounts, your money in the bank will be available for withdrawal with a signature even if you have lost the bank passbook or the statement. However, one does not keep a lot of money in the bank.
How does one access the investments?Most traditional investments come with a certificate of ownership – a document that needs to be produced if one needs to withdraw the money. It could be a good idea, especially in good times before the trouble arrives, to keep photocopies of all such documents and store the same at a place other than your residence. This other place could be your bank locker, a very close relative’s place or your financial advisor’s office. One may also consider having electronic copies of these documents. One needs to get these documents electronically scanned and store the files on some computer hard disk or a compact disk. Same can be done for insurance policies and property ownership documents. As a broader term, we may include all major assets like house, vehicles, etc. under property.
On the other hand, there are some investments, e.g. shares and mutual funds, where you do not get a physical certificate of ownership. The ownership gets reflected in an electronic statement. These days, shares of almost all the listed companies are dematerialised and hence they reflect in your demat account in an electronic entry form. Even if you lose one account statement, another can be generated with ease. Ownership of mutual fund units also comes in form of an account statement. This also works like a bank account or a demat account.
And finally, it is always a good idea that the members of your family are aware of the investments and insurance, just in case.
With such precautions, you could be better prepared if the disaster strikes. Remember, fortune favours the prepared.
– Amit Trivedi
ARTICLE 2: WRITTEN IN 2009
Last July, we had written about certain things to do as a safeguard against a disaster http://www.moneycontrol.com/india/news/mf-experts/if-disaster-strikes-are-you-prepared/347341. The article started with some examples of natural disasters that struck and are etched in our memories. Incidentally, all those happened on 26thof some month in some year. Nobody knew that only four months later, another tragedy, this time, man-made, would hit our beautiful and enterprising city – Mumbai. The horrible memories of the incidents that happened in Mumbai on 26thNovember, 2008 still haunt many of us. While the news channels were busy analysing the Mumbai attacks, the Chennai floods went almost unnoticed in December of 2008. The fact is, whether natural or man-made, calamities are a part of life. We cannot wish them away. What we can do, is to prepare ourselves to handle such situations better.
Being in Mumbai, the month of July always looks scary what with the probability of at least one or two days of heavy rains. This year once again, certain reports and advisories have started coming in the media and the mail boxes. July 24th, 2009 is feared to bring what some people have called “the tide of the century”. It is in light of such stories, that we thought of adding some more precautions to the last year’s list.
While the last year’s note was more from the documentations point of view, let us focus on certain other matters, which may be more urgent if and when the crisis hits.
First of all, if 26thJuly, 2005 happens once again, what could be the immediate risks that one would face? Let us see what happened four years back. Almost entire city was under water. Supply of essential items was affected. In certain cases, people rushed to the ATMs only to find that the same was out of order – once again due to the heavy rains and flooding in lower areas. Some people were badly affected and had to be medically treated.
Let us just focus only on these two situations: availability of cash and medical contingency.
Cash in hand is definitely more valuable in a crisis situation. Anyway, don’t we save for that “rainy day”? It could be a good idea to assess the need for household expenses and keep cash around one week’s expenses at a safe place at home. Needless to say, one has to also keep the cash safe from theft, water, fire, pests, etc.
Medical contingency could be related to the disaster or not. Either way, one needs immediate medical attention. Getting the patient to the hospital might be a task in itself, but after getting there, payment of dues should not result into a major trouble. Medical insurance is designed to help people in such a case. One would be advised to go through the terms of the policy and understand the provisions of the policy as well as the exclusions (the conditions when the insurance company will not be liable to pay). In case of doubts, one may call upon the advisor and ask questions. Many insurance companies have helplines for customers to get more information on their policies.
The claims in case of medical insurance are settled through what is known as a TPA (third party administrator). It would help if the medical centre where we go for treatment is in the approved list of the TPA. In such a case, one can have cash-less settlement of the claim. However, if such a thing may not be possible at all times. In such cases, one will have to make the payment to the medical centre and then put a claim for reimbursement. However, in either case, it is important to inform the TPA while one is undergoing the treatment.
So what can we do as a matter of preparation?
- Have a medical insurance. If you do not have one, please go ahead and get one now.
- Understand the provisions of the insurance policy
- Keep the list of nearby medical approved by the TPA handy. Share the same with members of your family.
- Keep the TPA’s phone numbers on hand.
- You may also have a financial advisor who can help in the above matters. In such a case, you must have the financial advisor’s phone number ready on hand.
I know many readers from drier places might wonder why they should bother. Such a thing cannot happen where the rains are not so heavy. Let me assure you that the Mumbai example is given only for the purpose of understanding certain aspects related to risk. But at the same time, I must add that disasters, calamities, risks, whatever name we use, have a habit of striking when least expected.
We cannot prevent disasters, but we can prepare ourselves to reduce the adverse impact on our lives. We will end this with the same line we used last time, “Fortune favours the prepared.”
– Amit Trivedi