What you should do to soften the blow of second Covid wave on your finances

This is a time to focus not on maximising upside gains but curtailing downside risks

In normal times, most of us are preoccupied with how fast our investment portfolio is multiplying, and what we can do to speed up its growth. The pandemic, however, should force you to take a hard look at the downside risks that could jeopardise your finances. To enumerate, the primary risks we face today are possible loss of job, loss of life, high cost of treatment, the disruption of income due to health problems, and so on. Here are a few steps you can take to minimise their impact.

Create an emergency corpus

In normal times, an emergency fund that can take care of six months of household expenses (including equated monthly instalments or EMIs and insurance premiums) is sufficient. But at present, white-collared workers in many sectors are vulnerable. "In these times, you should have an emergency corpus equal to 12-18 months of expenses," says Ankur Kapur, managing partner, Plutus Capital, a Sebi-registered investment advisory firm.     

Having an emergency fund will ensure you do not touch your long-term investments, which have been earmarked for goals such as retirement, children's education, marriage, etc. Long-term portfolios tend to be heavy on equities. "You do not want to withdraw from them at a time when the equity market is down," says Kapur.

Within this emergency corpus, a part should be earmarked as medical emergency corpus. This should equal around one per cent of your net worth (investment portfolio). It should be kept in the form of cash at home, savings account, fixed deposit (accessible to both spouses), and credit card borrowing limit.

According to Suresh Sadagopan, founder, Ladder7 Financial Advisories, "People who do not have an emergency corpus, but own some gold, should treat it as their emergency corpus for the present, until they build one." In an emergency, such people may consider liquidating their gold holdings (which can be done at a neighbourhood jeweller) or taking a gold loan. Those who have a property may consider taking a loan against property. Such secured loans carry a lower rate of interest than unsecured loans, like a personal or credit card loan.

Buy adequate health insurance

If your company offers you health insurance, treat it as your first line of defence. However, given the risk of job loss, you also need to supplement it with a personal health insurance cover.

Depending on what you can afford, you must have a family floater cover with a sum insured that could range from Rs. 5-50 lakh (or more for the ultra-rich who may want to be treated abroad in case of a grave ailment). A useful strategy here is to buy a base cover of, say, Rs. 5-10 lakh and then supplement it with a super top up cover (See table of premium rates). Such policies can help you boost your cover by paying affordable premiums.

The quality of the health insurance cover is as important as the quantity of sum insured. The policy should not have caps on room rent, doctor's fee, specific treatments, etc. "Buy a cover that also takes care of pre-and post-hospitalisation costs and other essential expenses," says Naval Goel, chief executive officer and founder, PolicyX.com.

People who are unable to get a standard health insurance cover may purchase a Corona-specific policy for now. "Such a policy will, however, only cover you for this specific disease. Even a Covid 19 patient can require treatment for other diseases resulting from the complications arising from this virus," adds Goel. Hence, he says, your goal should be to get a comprehensive health insurance cover in the long term.

Besides purchasing adequate health insurance for your spouse and children, make sure you also have adequate health cover for your ageing parents. Begin by including them in your company's group medical cover. "Getting a personal insurance cover for elderly parents is not easy. Either the applications get rejected or the coverage is expensive. Nonetheless, you should try," says Ankur Maheshwari, chief executive officer, Equirus Wealth Management. Many insurers now offer policies specifically targeted at senior citizens.

Buy adequate term insurance

One risk that many families have witnessed during this pandemic is loss of life of the breadwinner. In single-income families, especially, this can spell financial catastrophe. Financial experts say you should treat this pandemic as a wake-up call to buy sufficient term insurance if you don't have it already. "Those in their late 20s or early 30s should get a term insurance cover equal to 20 times their annual income, while those in their 50s may have coverage of around 10 times," says Kapur.

Reduce expenses and leverage

One point financial planners are emphasising is the need to curtail expenses. "You may not have control over the other circumstances surrounding the second wave, but controlling expenses is very much in your hands," says Sadagopan.

A decision to take on leverage should be taken after a lot of hard thinking. Even highly qualified people occupying important positions and earning salaries running into crores have lost their jobs as their companies downsized. Those among them who had borrowed heavily, especially to buy a house, are finding it difficult to cope. Many are trying to sell off the house but are finding it difficult to do so.

"Before deciding to purchase a house, give a lot of thought to whether you will be able to pay your EMIs if you lose your job," says Kapur. Only people with a hefty investment corpus, he says, should consider buying a home in these trying times. Suppose that you have a portfolio that has a value of Rs. 50 lakh. You may then consider buying a house of up to Rs. 1.5 crore. If your EMI is, say, Rs. 1.2 lakh, the portfolio will be able to take care of your EMIs for at least three years.

Don’t delay estate planning

On an excel sheet, or a piece of paper, put down all your assets and liabilities. Your spouse, or grown-up children, must be aware of all the investments that you have made and insurance you have purchased. "We have witnessed many situations where, when the head of the family passes away suddenly, the remaining family members are rendered destitute, simply because they are not aware of where the investments are parked," says Maheshwari.

Also, make sure that all your investments, bank accounts, and insurance covers have a nominee. Finally, take this crisis as an opportunity to create a Will so that the transfer of assets to your spouse and children is smooth.

Table: Annual premium rates for super top-up policies (in Rupees)

Age (yrs)/Sum insured (Rs)	10 lakh	40 lakh	65 lakh	90 lakh
25

391 740 791 841 35 391 782 841 898 45 484 1,596 1,747 1,902 Notes:
For Rs 10 lakh cover, premium rates  are from Liberty General Insurance, plan name is Supra Super Topup (I)

For Rs 40 lakh, 65 lakh and 90 lakh, insurer is Max Bupa Health Insurance, plan name is Health Recharge

These are the lowest rates avaiable with PolicyBazaar; Premiums are for those with a base policy of Rs 10 lakh