Increase health insurance cover, avoid fresh loans to deal with COVID-19 second wave

Here are a few steps that can help safeguard your financial health in these challenging times

May 17, 2021 / 09:50 AM IST

The second wave of the COVID-19 pandemic is threatening the economy. The lockdowns imposed in many states have already impacted over 70 lakh jobs, taking the unemployment rate to a four-month high. The situation could get worse if the pandemic is not controlled. These macroeconomic numbers will soon show up on individual finances. Hopefully, there won’t be a repeat of the extensive job losses and salary cuts witnessed last year. Even so, here are a few steps that can help safeguard your financial health in these challenging times.

Buy more health insurance

A family floater plan of Rs 2-3 lakh will not be enough anymore. Enhance the cover to at least Rs 8-10 lakh. If you haven’t bought health insurance because you are covered by group insurance from your employer, it’s time to take corrective action. Group health cover will cease if you lose your job and it’s not possible to buy health insurance like you do online shopping. Health insurers will want to put you and your family through medical tests before they issue a policy. There is also a waiting period before certain illnesses and pre-existing conditions are covered. Till then, any hospitalisation expense will have to be borne by you.

Also read: Want to take health insurance cover for your parents during COVID-19? Here are the options

Keep cash ready


COVID-19 Vaccine

Frequently Asked Questions

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How does a vaccine work?

A vaccine works by mimicking a natural infection. A vaccine not only induces immune response to protect people from any future COVID-19 infection, but also helps quickly build herd immunity to put an end to the pandemic. Herd immunity occurs when a sufficient percentage of a population becomes immune to a disease, making the spread of disease from person to person unlikely. The good news is that SARS-CoV-2 virus has been fairly stable, which increases the viability of a vaccine.

How many types of vaccines are there?

There are broadly four types of vaccine — one, a vaccine based on the whole virus (this could be either inactivated, or an attenuated [weakened] virus vaccine); two, a non-replicating viral vector vaccine that uses a benign virus as vector that carries the antigen of SARS-CoV; three, nucleic-acid vaccines that have genetic material like DNA and RNA of antigens like spike protein given to a person, helping human cells decode genetic material and produce the vaccine; and four, protein subunit vaccine wherein the recombinant proteins of SARS-COV-2 along with an adjuvant (booster) is given as a vaccine.

What does it take to develop a vaccine of this kind?

Vaccine development is a long, complex process. Unlike drugs that are given to people with a diseased, vaccines are given to healthy people and also vulnerable sections such as children, pregnant women and the elderly. So rigorous tests are compulsory. History says that the fastest time it took to develop a vaccine is five years, but it usually takes double or sometimes triple that time.

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Even if you have health insurance, many expenses will not be covered by the policy. Ambulance service providers are currently charging Rs 8,000-10,000 for taking a patient to a hospital, while your policy will reimburse only Rs 1,500-2,000. There are reports of some hospitals demanding Rs 2-3 lakh upfront for providing a bed, which may not be covered under your policy. Be ready with liquid cash or a credit card in case of an emergency.

Consider buying life insurance

The pandemic has shown how life is so unpredictable. If you don’t already have life insurance, consider buying one now. Although the lockdowns and other COVID related hurdles will block your path, start the process now. You must have a cover of at least 4-5 times your annual income. A term plan from a reputed company will serve this purpose very well. Term plan premiums have gone up in recent months, but don’t let that deter you.

Also read: 4 lesser known insurance policies to claim from if you lose a loved one to COVID-19

Set up an emergency fund

The possibility of job loss and pay cut is not as remote as it seemed some months ago. Prepare for such an eventuality by building an emergency fund. You should have enough money in a liquid fund or a bank deposit that can be accessed in an emergency. The thumb rule is to maintain at least 5-6 months’ expenses in such a fund.

Conserve your money now: One way to build an emergency fund is by cutting down on all wasteful expenses. Revisit your household budget and identify the expenses that can be knocked off. If you remove these unnecessary items, you will be able to fit in everything you actually need. Keep big-ticket expenses on hold till things settle down and life returns to normal.

Also read: COVID-19 second wave: How to keep your money safe?

Avoid moratorium on loans

Last year, the RBI had asked banks to offer a moratorium on all outstanding loans. Many people opted for the EMI holiday without really understanding its implications. The missed payments only ballooned their outstanding amounts. So widespread was the problem that the government had to pay the compound interest accumulated due to the missed EMIs. If another moratorium is announced this year, don’t opt for it unless you really face a cash crunch.

Don’t take on fresh debt

This is also not the time to take on fresh loans. If you have loans going, don’t try and immediately prepay; take your time.  Conserve cash as much as you can because you never know when you will need it. If you want a loan, opt for partial withdrawals from the Public Provident Fund, where the interest rate has been cut to 7.1 percent. If the investment has completed more than six years, you can withdraw up to 50 percent of the balance at the end of the previous financial year. It is also possible to take loans against insurance policies that have completed more than three years.
Raj Khosla is MD,
first published: May 17, 2021 09:50 am

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