Taking cover: Why disability risk should not be ignored
Apart from accident related disability, disabilities can arise in a child from birth and in an old person in his/her last few years of life. In most situations it impacts family finances to a large extent.
While people often cover the risks to life and health, there is hardly any importance given to risk of disability. Most perceive this risk to occur only because of accidents. Since the number of survivors in accidents is low, the risk of disability is also considered to be low.
As a result, when individuals plan their finances, making provisions for disability ranks quite low in their list of priorities. That's a mistake. Apart from accident-related, there are others like disability that happen at the birthand in the old age.
In most situations it impacts family finances to a large extent. Given below are three stages where disability can force families to make changes in their financial affairs:
1. At birth
There can be many reasons for disability arising at birth. Also, there could be different kinds of disabilities a child may be born with. Such children are known as special needs children. From parents' perspective, a lot changes when a child is born with a disability. In most cases he/she may be a lifelong dependent and may never be able to take his/her own decisions. So parents have to provide support to their special need child even in the later years of their life.
The financial planning concerns for such parents are much more than other families. Here, the family has to plan for two generations - one for themselves and the other for the child. The expenses for meeting the needs of a special child takes away major share of parents'income and this situation runs for his/her lifetime.
Thus, the requirement at retirement is much higher, as it has to accommodate the expenses of the child who has grown to an adult. One of the most critical issues that parents have to deal with is care for the disabled child in their absence, for which they have to identify an appropriate guardian and form a private trust.
The other issue that these families need to deal with is planning for other family members, like a second child. All these concerns have to be addressed when special needs children families are planning for their finances.
2. Accidental disability
There is no age to accidents and so such disability can happenat any stage of life. A temporary disability like fracture for example, will force the working individual out from employment for a few months.
If provisions for emergency have been made, one can sail through such situations. But a permanent disability can be disastrous. It may force one out of employment completely. If adequate protection has not been taken then the financial stress on the entire family, especially the partner will be too high.
Hence, if permanent disability does arise, then financials need to be re-looked at. The family expenses will have to be revised and in some situations, the goals may need a revision as well. Whether to cut down on both will depend on the provisions one has made for addressing this risk.
If the risk is completely uncovered, then the family might have to cut down on their lifestyle expenses and the spouse may have to look for earnings if expenses are not being met. Considering all these aspects, it is wiser to cover this risk through adequate insurance.
3. Old age
Risk of disability is highly probable in old age. When an individual reaches an age where physical health does not allow much active work, then even a small accident can force him/her to be bed-ridden. A case in point is a living example of an old man aged 85 who met with an accident falling from the stairs.
He was bed-ridden for five years due to his broken ribs. The children took care of him for a few years but then they were not able to continue the support due to their financial constraints. Situations like these are very common and hence must be factored in while planning for retirement.
This is precisely the reason why continuing equity investments in the post retirement years is recommended. This can ensure that one has enough accumulated for the later years of life and one need not be financially dependent on children. There may be more instances where risk of disability will be present.
It is high time that this risk is provisioned for in financial planning. Procrastination will only lead to suffering and if such a situation were to arise, any other solutions may be hard to come by.
Jitendra PS Solanki, a Sebi-registered investment adviser, is a member of The Financial Planners' Guild, India, and founder,JS Financial Advisors.
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