Is Health Insurance your emergency fund?

Nutan Gupta

03 Jul 2017

New Page 1

The Emergency fund:

In a world full of uncertainties, having an emergency fund is of paramount importance. An emergency fund is an amount that you keep earmarked for unexpected contingencies, such as loss of employment, medical and other health concerns, and other such situations where expenses cannot be met single-handedly by the income. The emergency fund or the contingency fund is what keeps one floating in situations where one is left with no income.

An emergency fund isn’t supposed to fund those extravagant purchases you make; it is supposed to assist you in emergencies, whenever you might need the cash. It is wise to maintain an amount that covers at least three to six months’ expenses. Another main objective of having an emergency fund is to take care of your unexpected medical expenses.

Is Health Insurance a part of your emergency fund?

The term "medical emergencies" has a very broad scope – it can mean something as trivial as a road accident or as serious as lung cancer. These are the things that no one has control over and can bring a huge financial disaster. Buying a health insurance with cashless facility will offer protection in such a situation otherwise you need to keep aside a larger emergency fund so that it can cover the medical exigencies as well.

Why health insurance?

Statistics show a rise in the number of cancer and blood-related diseases, which means the total expenditure on health and disease prevention, and cure is rising too. These rising costs can wreak havoc in someone’s life that doesn’t have a contingency fund earmarked. In the absence of such a fund, the person might have to borrow the money from a friend, a bank or perhaps another un-institutional source of finance at an exorbitant rate of interest. This can be very expensive and otherwise disastrous to the long term financial goals. The solution to this is a properly planned emergency fund.

How much health insurance do you need?

The sum assured on your health insurance should be sufficient enough to cover your health expenses in case of a medical emergency. The amount of sum assured you require largely depends upon your family size, your current income, the health status, age, and the health coverages you already have.

If you have your elderly parents that are dependent upon you then, you may require a larger health cover given the old age of your parents which may require more medical attention. Similarly, the health cover provided by your employer may not provide sufficient sum assured to cover your and your family’s medical expenses. Then, in that case you may need to buy a supplementary plan to have a sufficient coverage.

Also, it is important that the health insurance policy you choose to buy should have a large network of hospitals so that you can avail cashless facility. Otherwise, you will have to dig in your savings to pay the medical bills and then submit them with the insurance company for reimbursements. This defeats the purpose of having a health insurance as emergency fund if you have to arrange for cash for paying the bills on your own.

The bottom line

It is important to allocate sections of the emergency fund to different things because you never know what happens. Going by Murphy’s Law – what can happen, will happen. It is in one’s best interests that one should save for any and all possibilities. One might think that one cannot fall sick and lose one’s job at the same time but it might happen, and the health insurance you have will help you that day.

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mutual-fund

Why to Choose Mutual Funds Instead of Directly Investing Into Equities?

Whether to invest in equities or mutual funds is a question that has plagued every investor. As someone who needs the best value for his/her investment should you invest in equity directly or via mutual funds?

Let’s start by first understanding what these two terms ‘equities’ and ‘mutual funds’ stand for-

Equities- Equities generally represent ownership of a company. If you own any equity in a company, you are a part owner of the said company (depending on how much equity you own).

Mutual Funds – It is an investment scheme which is professionally managed by an asset management company. It pools together the resources of a group of people and invests their money in equities, debentures, bonds and other securities.

Why choose mutual funds over equities?

For people who’ve never invested in either stocks or mutual funds, it is hard to know which is better and where to start. Broadly speaking, if you are a novice investor, mutual funds are not only less risky but also way easier to manage. Here are some ways in which investing in mutual funds is beneficial as opposed to investing in equities -

Diversification

Mutual funds provide more diversification as compared to an individual equity stock. When you invest in equity, you are investing in a single company which has its inherent risk. For example, if you invest Rs.20,000 in buying equities of one company, you could face a total loss if that particular company performs poorly in the market.  

If you invest the same amount in mutual funds, it will be invested in different kinds of stocks and financial instruments, high-risk and low-risk both, so you might not face total loss even if one company does poorly.

Scale of Investment and Lower Costs

For an individual investor buying and selling stocks is a difficult task due to its high price. Thus, any gains made from stock appreciation are nullified if the overall trading costs are considered. Comparatively with mutual funds, as the money is pooled from a large number of investors, the cost per individual is lowered.  

Another advantage of mutual funds is that you don’t need to invest large sums of money. Buying equities for a profitable venture needs huge amounts of money, a minimum of few lakhs. With mutual funds, you can start with Rs.1000 and earn profits on that as well.

Convenience

Keeping an eye on the markets everyday is a time-consuming business, especially if you are investing as a side gig. There are people who spend their lives studying the market and still end up sustaining heavy losses. Though investing in mutual funds does not guarantee high returns, it is stress-free and needs less work as compared to investing in equities.

To sum it up

It is important to remember that mutual funds have their own disadvantages as well. Thus, as with any financial decision, educating yourself and understanding the suitability of all the available options is the ideal way to invest. 


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Is Health Insurance your emergency fund?

Nutan Gupta

03 Jul 2017

New Page 1

The Emergency fund:

In a world full of uncertainties, having an emergency fund is of paramount importance. An emergency fund is an amount that you keep earmarked for unexpected contingencies, such as loss of employment, medical and other health concerns, and other such situations where expenses cannot be met single-handedly by the income. The emergency fund or the contingency fund is what keeps one floating in situations where one is left with no income.

An emergency fund isn’t supposed to fund those extravagant purchases you make; it is supposed to assist you in emergencies, whenever you might need the cash. It is wise to maintain an amount that covers at least three to six months’ expenses. Another main objective of having an emergency fund is to take care of your unexpected medical expenses.

Is Health Insurance a part of your emergency fund?

The term "medical emergencies" has a very broad scope – it can mean something as trivial as a road accident or as serious as lung cancer. These are the things that no one has control over and can bring a huge financial disaster. Buying a health insurance with cashless facility will offer protection in such a situation otherwise you need to keep aside a larger emergency fund so that it can cover the medical exigencies as well.

Why health insurance?

Statistics show a rise in the number of cancer and blood-related diseases, which means the total expenditure on health and disease prevention, and cure is rising too. These rising costs can wreak havoc in someone’s life that doesn’t have a contingency fund earmarked. In the absence of such a fund, the person might have to borrow the money from a friend, a bank or perhaps another un-institutional source of finance at an exorbitant rate of interest. This can be very expensive and otherwise disastrous to the long term financial goals. The solution to this is a properly planned emergency fund.

How much health insurance do you need?

The sum assured on your health insurance should be sufficient enough to cover your health expenses in case of a medical emergency. The amount of sum assured you require largely depends upon your family size, your current income, the health status, age, and the health coverages you already have.

If you have your elderly parents that are dependent upon you then, you may require a larger health cover given the old age of your parents which may require more medical attention. Similarly, the health cover provided by your employer may not provide sufficient sum assured to cover your and your family’s medical expenses. Then, in that case you may need to buy a supplementary plan to have a sufficient coverage.

Also, it is important that the health insurance policy you choose to buy should have a large network of hospitals so that you can avail cashless facility. Otherwise, you will have to dig in your savings to pay the medical bills and then submit them with the insurance company for reimbursements. This defeats the purpose of having a health insurance as emergency fund if you have to arrange for cash for paying the bills on your own.

The bottom line

It is important to allocate sections of the emergency fund to different things because you never know what happens. Going by Murphy’s Law – what can happen, will happen. It is in one’s best interests that one should save for any and all possibilities. One might think that one cannot fall sick and lose one’s job at the same time but it might happen, and the health insurance you have will help you that day.