Risks come to us on our daily life. We cannot avoid risk totally. The best method to deal with the risks is to be aware of the risks and manage them accordingly via strategic contingency planning. These are the 4 risks:-
A) Health risk: if we do not take care of our health, the risk will appear soon. We should have plans on exercise / diet to make sure we stay healthy. When we fall sick, we will need substantial financial resources to cure the illness. Currently, the cancer treatment will cost easily RM 200K – 300K. Do make sure you have a health medical card to cover all these hospital expenses when you need it. In fact, health medical card is the first protection one must seek before any other insurances.
Something to take note is that the medical card covers only the hospitalization expenses and it does not cover the loss of income, cost incurred for supplements, natural treatments, etc. Check your annual limit of your coverage to ensure it is enough in view of the inflation of the medical expenses. Also, this coverage is best purchased when one is healthy. When there is any sickness discovered, the insurance companies will reject the application or impose loading on the premium which might make the premium becomes unaffordable.
B) Mortality risk: no one can avoid the risk of dying. But what we are afraid is that we die too soon. Hence, we need to have a contingency plan to decide:-
Who will be affected if we are dying too soon?
What would be the arrangement for the affected individuals?
To manage this risk, we can transfer the financial risk to the insurance company. A good and adequate life insurance plan should be able to cover the financial commitments (loans) and future living cost for our dependents. How about other non-financial arrangement? This can be done via a will and a trust with power of attorney which we can list down who will be responsible to do what. For example, if one is leaving behind a company, it is better to identify a potential successor to take over the company in case anything happens. This can be done via a business succession planning.
C) Disability risk: accident can happen anytime. Sometimes, death is not the worst scenario, disability is. Surviving with disability will no doubt create more financial and psychology issues for one and his / her family. This might also ruin a family. Having a thought about how to deal with it can help one get prepared for it. Think about the loss of income stream when one becomes disabled. Start to plan some passive income streams so that we are not solely dependent on active income. Have Total Permanent Disability Insurance / Partial Permanent Disability Insurance in place to ease the financial burden in case misfortune happens in life.
D) Longevity risk: risk 1 and 3 are not definite risk. Risk 2 and 4 are very possible to happen. We either live too long or die too soon. This is something that we definitely need to plan properly. We have to ensure we save for future as we cannot work forever. Diversify some of your savings to various investment to ensure you have enough money to sustain if you are still living at old age.
A lot of people might think that contingency planning is just for their family. If you look at the 4 risks above, only 1 risk (mortality risk) is happened without you. The other 3 risks you will still survive. Hence, protect yourself and your family when you can still do so. Start planning these risks.
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