Health Insurance Vs Emergency Fund
This pandemic has taught us many lessons which were important but we had ignored so many things in rat race of life. We have also realized that personal finance management is also importance aspect of life. Due to lock-down conditions salaried people are most impacted. Here in this article, we will discuss the importance of Emergency Fund and Health insurance to tackle such unexpected pandemic situations.
What is Emergency fund/ Corpus?
Emergency corpus is also known as contingency fund. In simple words, an emergency corpus is sum of amount which we keep aside to meet an unexpected expense. Emergency fund helps in the time of emergencies when your monthly income falls short and your saving account fail to help you. This corpus is intended to help you to sustain your lifestyle and have peace of mind.
People are always curious to understand what should be the amount you should target for creating an emergency fund. Some people suggest it should be equal to 3 months Income. Some people recommend that it should be greater then or equal to 3-4 months expenses. As a thumb rule, healthy ratio, you should have an emergency fund corpus of 3 – 6 months of your salary. For example, if your monthly salary is Rs. 50,000/- then your emergency fund corpus should be between 2lakh to 3lakh. You should also consider the sector and the company you are working in and job security it offers.
Your emergency fund corpus should be kept in a instrument that allows easy and fast withdrawal without any erosion of capital. It’s suggested to keep it in separate saving account earmarked for emergencies instead of a regular one. You can use debt instrument i.e., liquid funds or fixed deposits to build the emergency corpus.
What is Health Insurance?
A medical emergency always proves to be heavy on the pocket with heavy bills of hospitalization expenses. This not only derails long term financial plans by can put in debts as well. Changing lifestyle is also rising diseases as well, hence a health insurance policy is essential. The sum assurance depends on several factors but primarily its should be able to cover your health expense for a while.
Usually, your employer provides a health plan. its strongly recommended to one on your own, just in case of job loss, Job change, starting your own business or start working a freelancer, so that your Healthcare expenses can be taken care of, no matter what.
Sum assured of a health policy depends on the income, age, health status, family size and insurance you have already taken. If you have elderly parents or grandparents at home, who are dependent on you. They need larger cover considering the fact that they may need more medical attention than you.
While buying a health insurance policy you should also check for network hospitals. It should cover maximum no of hospitals in your area of residence. There is no point breaking your long-term investment, digging your own saving, or borrowing from friends and family at the time of crisis and submit claims later.
(Also read about Govt. PPF Scheme : Public Provident Fund – Features and Benefits)
Why should you have both an emergency fund and a health insurance policy?
We strongly recommend you to have a health insurance policy even if you have an emergency fund corpus as life is unpredictable, irrespective of anything you should always allocate various portions of your income into different funds. A health insurance policy will help you to meet your healthcare expenses during medical emergencies and an emergency fund corpus help you in contingencies i.e., job loss, pay cuts to meet your rent, loan EMI, education fee, utilities bills, insurance premiums, and other expenses.
Therefore, a health insurance policy and an emergency fund corpus are not substitute to each other. Just because you have created an emergency funds corpus, doesn’t mean you don’t need a health insurance policy and vice-versa.
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Also Read : Why Health Insurance is important By Sunil Chaudhary.