The Self Employed and the Private Sector Professionals - Create your own safety nets

 

The Self Employed and the Private Sector Professionals - Create your own safety nets

Dinesh K Kapila, CGM (Retd), NABARD

This article is prompted rather motivated cum prompted by what I see around me over the years and the sheer trauma or if not trauma than the huge amount of difficulties and challenges posed by the lack of creating a safety net by many self employed professionals and private sector employees when troubles strike. And troubles can strike even if the magnitude may vary. We  honestly  cannot leave everything to the Grace of the Almighty with my due apologies to the Almighty.

 Three risks must be covered by every self employed professional. And an employee in a private sector set up not offering a safety net. These three are Life Insurance, Medical Insurance, Property cover and a Pension for old age. We can add a fourth, an insurance for the house or apartment and the high cost consumer items. These need not be looked at as an expense but an investment in ensuring the peace of mind and a back up for the family.  

 A colleague and a good friend shared with me about a certain acute trauma faced by the family of his nephew, a young man, and a successful one, in a corporate set up, in the absence of life  insurance and health insurance. Or the limits were too low for medical expenses and there was no life cover. Medical care can be very costly. A businessman of reasonable means told me he never even thought of this. Then I got talking to a to a well to do advocate just the other day  and as this played on my mind we discussed about insurance. I was astounded to hear him say that most in his line don’t even discuss such issues. And in any case it was just bad luck or fate if anything adverse or cataclysmic did occur. I think of it as just being very unwise and illogical financially. At least now a days we have enough information flowing in on such issues.  Later, another self employed professional, a trader in the financial markets,  only confirmed what the advocate told me.   

 When a self employed path is charted out by any professional, it’s good to be optimistic. One must be and go for it with full commitment. Plan with positivity and enjoy success as it comes. But life has its own twists and turns and at times it can be very cataclysmic. It is better to be prepared rather than to be having a rather flippant attitude towards the whole issue or by pretending it’s not a concern.

 Just driving the issues and concerns deep down in the conscious is not going to drive reality away. It does not happen. And as I said have faith and pray but better prepare for any eventuality by making the necessary preparations and acquiring the due cover now only. Just to clarify, I am a religious person, in case my statements create a doubt but we have  to strike a balance between the religious / spiritual and the temporal. In The Almighty we Trust but we Create our Own Safety Nets is the way. Just by the way, in a hill town the houses have suddenly sunk and the residents are appealing for the waiver of the loans and interest payable, The Banks would normally cover the life only for the loan but being in a hill station, and with the risks as we know, a cover for earthquakes and floods and the like would have been better.

 Another point is not to play into the marketing of the relationship managers or investment managers or agents as regards taking a cover as security for life or property for any eventuality. I can personally say I have made my share of errors too by a lack of proper assessment and can thus advise better on the issue. A cover is not an investment for returns no matter what the agents say or the relationship managers. It’s a security that you seek for your own peace of mind. And of the family. If we opt for a investment oriented cover, so be it, but after your own assessment. The decision and its implications is for the person actually incurring the cost of investing. No Uncle or Aunt or Nephew can do it.  

 A term insurance policy for life cover for the earning members is a must. The premiums paid are not returned but the cover is higher and can really provide succour to the family in case of any eventuality. Select the amount as required by your liabilities and the culture / lifestyle of your family. Certainly pray that such an eventuality is not there but its better to have it. Its just a security.  And we should know the distinction between a term cover, an endowment policy, a ULIP, or a return of term cover, the costs and implications. And insure the spouse too. It’s a peace of mind we seek by this cover. Simply put.

 I do not understand as to how people are ready to shell out a few lakh rupees for a vacation but are reluctant to pay for a life or health cover. At times the vacation seems to be driven by the need to post on social media. And then I get nonsensical justifications, the costlier car - A Volvo when a Honda City is actually affordable and a vacation in Italy or the like when it could be a shorter stay abroad or at Goa or the like. And this while there is no health cover or life cover and no investments in NPS (National Pension Schemes), these are thought to be expenses to avoid but a vacation to show you are on the move is fine.  Lifestyle projections are good but do your own maths in case of an eventuality such as a  disease or a loss of life. Or decide what all is to be invested to earn a sum regularly per month (an assured cash flow) once you age when a NPS product would have done it. Old age and health expenses are a reality and so is the inability to work at the same level as before. Thus the need for a NPS Product.

  Up North and the North West we are more prone to a false upgraded projection which impedes the acquisition of the cover for security as all the attention is on how to indicate you have arrived or are enroute to that exalted station. We need to know this trait within many of us. And kindly remember property takes time to be sold if that is the security, a fire sale always is with a discount. So balance it out as regards investing too. And Doctors at major hospitals  say they have horror stories of families hawking jewellery and the like for medical treatment. This is the reality. At forty or forty five a professional  person is on the cusp of making himself secure normally and that is when any eventuality can be a major setback for the family. That must be understood. However any major eventuality at any stage is a trauma. 

 It’s driven by my personal awareness of the impact of such issues  and listening to the woes of some reasonably well to do businessmen that I write this. And men must be less secretive about their investments. Not telling your spouse is absolutely silly and leads no where in case of any handicap or death. Where will the spouse go to firstly to know the investments and then on how to acquire them in her name. Share the facts and even the gains and tribulations and losses. But do not camouflage or hide them. It can be very traumatic in case of any unfortunate event.

 Do read up PPF (Public Provident Fund), the investments at the Post Office, even the Postal Insurance. Mostly, invest in the simpler, more understood products. And even small regular investments add up. And kindly know for sure the medical cover provided by the Central / State Government, the facilities at State run hospitals and the  costs, the Social Security Schemes of the GOI (Suraksha Bima Yojna etc). The information is readily available.  No amount is ever small. It all adds up. And compounding is beneficial too.  The HNI (High Net Worth Investor) has his knowledge and network and are not really the subject here but even some of them are seen to have made errors.  

 An additional concern I have is that of informal agreements among partners and so called childhood friends. This can be true is some cases but not all, visit the courts and banks to know the reality. I know myself of cases where when one partner died, the other partners simply denied there ever was a partnership, in one case they even said the partner - a childhood friend and classmate - was a mere employee. The correct way is to have legally vetted agreements always. Pay the legal fees and keep a copy with your spouse. Emotions are good but in money matters being careful is much better. Always. Make it a point to have a signed legally valid agreement, emotions and promises are fine but an agreement is logical and better in any joint venture. 

 The affordability may vary of a product and the insurance company may deny giving a cover in some circumstances but a lesser amount can also be opted for. A limited cover is better than no cover.  Plus the amount can be enhanced over time though more the age the higher the premium too. That is the fact.

 So professionals, many in the private sector, lawyers, doctors, architects and the like and self employed businessmen may kindly explore the adequate cover of life, health and  property and of an assured cash flow in old age. Read up. This can be studied by many in the Government set up too. I read that in some nations the Associations of Professionals take cover too for their members, sounds complicated but could be thought off. Maybe a professional cooperative. 

The RMs and Agents have their targets and commissions and may gently guide you into areas you may realise later were not appropriate. This is a must. Not all are of this nature I must clarify but most do tend to rush you. What to invest in and why is only for the investor and not any one else. Any decision should be yours and yours alone after consulting the spouse. Kindly do think this over. 

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