Manage your Life
Managing life is nothing but managing three major risks of life. i.e. 1. Risk of illness, 2. Risk of early death & 3. Risk of long life. Let’s read below to understand, why these three risks are important in order to manage our life.
1. Risk of Illness – “Those who think they have no time for exercise, sooner or later, have to find time for illness.”
The cost of treatment has rose at a double digit pace of growth, outpacing average inflation in both rural & urban India over the past decade (according to recently published result of cross – national survey on health conducted by the NSSO).
Though hospitals in Indian cities are offering medical care at lower than that in the developed countries, for most of Indians, healthcare is becoming increasingly unaffordable, owing to rising cost of treatment in recent years. The below chart explains how health care cost in India has surged within a decade –
*Source: Livemint.com
Hence, in order to beat high cost of treatment, it’s highly recommended that one should have Mediclaim Insurance cover to manage the cost of illness. Mediclaim policy can also be considered in order to keep our invested amount untouched during the time of medical emergencies.
2. Risk of Early Death – This is the 2nd major risk of our life as early death can keep our dependents in mid-way and direction less. Our goals will be left unaccomplished.
The strongest risk factor contributable to early / premature death is low fitness that arises due to stress full life, smoking, diabetes, high blood pressure, high cholesterol or even obesity.
Taking term insurance after calculating our life value is a prudent way of managing risk of early / premature death.
For e.g. A person at 30 years of age, earning Rs. 10 lakhs annually with expected salary growth rate of 10% p.a. till retirement (60 years) and expected investment return of 12% p.a. would require life insurance cover of Rs. 3,94,32,788 in order to replace his Income with Insurance payout. (Income replacement method).
The factors used in above example, keeps changing and hence, it’s important that we revise our insurance cover in regular interval.
3. Risk of long life – Living longer is a good thing, right? Most people would probably agree with that. Living longer means more time to enjoy all the world has to offer and more time to spend with cherished family and friends. So what is longevity risk all about? The risk portion refers to the economic realities that may come up for a person who is on track to live past their life expectancy. We are talking about money, of course, and having enough of it to last a lifetime. For the blessed few, those with several million rupees, or perhaps a solid pension, financial issues won’t be of much concern. But for the rest of us, carefully planning for a long life will be of utmost importance.
One has few choices to make which can help protect him from longevity risk. If you’re still fairly young (think 30s through 60s) you can plan your retirement using a longer projection for life expectancy. Working until you retire at 60 or even 65 could allow you to save more money, which will reward you with higher future payments. Working more years, if possible, is perhaps the most basic way to combat longevity risk.
E.g. Individual’s current age – 30 years, Monthly expenses – Rs. 50,000, Retirement age – 60 years, average annual inflation rate – 6%
Monthly expenses after 30 years (at the age of 60th year) = 50000 x (1+6%)^30 = 2,87,175
Hence, yearly = 12 x 2,87,175 = Rs. 34,46,095
To get the above yearly payment, one need to have the corpus of Rs. 4,22,92,236 at the age of 60th year with assumed annuity rate of 7.5% p.a.
And in order to accumulate the corpus of Rs. 4,22,92,236 in 30 years period, one need to save Rs. 175,245 per year or Rs. 14603 per month. (*assumed investment return of 12% p.a.)
To conclude, Mediclaim will help us in managing our illness cost, Term insurance will help us in accomplishing our goals and will give financial support to our dependents after us and proper investment will give us income during our old age when we will not have any other source of income.
