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.