Forget IQ – Have you ever thought about your Security Quotient (SQ)?

Unknown 11:44 No comments

Just as I.Q. (Intelligence Quotient) is a score that measures your overall intelligence, Security Quotient (S.Q.) measures how well you have managed the security of different areas of your financial life. By security I am talking about insurance against external factors.

You head out of your home everyday and brave the perils of your daily job to earn money. You strive to ensure you have enough funds to meet your financial goals and to have a good lifestyle including buying a home, car and other assets. But you are always exposed to various kinds of external risks in life. If you do not take measures to handle them, you can come under attack from them some day and your financial life may be severely crippled or may even collapse. It is therefore imperative that you protect yourself well from all sides and have the resilience to deal with any kind of risk. This should take the form of preemptive action, which ensures that should an adverse situation arise, you already have put things in place to eliminate or minimize the risk.

Now lets look at few areas, both big and small, and how you can take actions to protect yourself from risks in these areas.

1. Protection against Life Risk (35%)

While you can control your actions, you have little to no control over the actions of others and the incidents arising from those actions.

So have you taken sufficient life insurance through a term plan or are you still deluding yourself by having those 3 or 4 traditional life insurance policies, which would not even feed your family for 2-3 years in the unfortunate event of your demise!

2. Protection against Hospitalization Risk (25%)

Many People think that paying premiums for a product that ‘might’ not be needed was a waste of money. Unfortunately, as a result of the unexpected hospital bills, a good part of the retirement corpus gets eroded. After a certain age it would be tough to get a policy at a reasonable premium. The best time for you to take health insurance is NOW.

How about you? Are you sitting on a pile of cash to the tune of 5-10 lakhs? You had better be

ready with this money it if you are not planning to take good health insurance cover.

3. Protection against illness (5%)

Now what if you catch some major illness? Are you taking care of your health properly? Are you walking, exercising, biking and eating correctly? These are some steps you should be taking today to make sure you lower your risk of illness or disease. Admittedly, this was a non-finance tip, but also considers taking critical illness cover so that in the event you are diagnosed with something major, you get support from health insurance companies in form of money.

4. Protection against Theft at Home or Fire (5%)

Again, though chances of something like this happening are minimal, the risk will always be there. It is therefore your choice if you want to be prudent and get insured against home damage due to theft, fire or other natural disasters. The good thing is, it does not cost a lot of money. A Few hundred rupees are all you need to pay for reasonable coverage against these risks.

5. Protection against Frauds on Credit Card and Banking (5%)

A frightening thing is that smart people have lots of tricks to exploit the fragile systems to loot investors. The ideal way to protect yourself is to know and apply the best practices to secure your information and also study the rules about banking and credit cards. You also have the option to take insurance cover against credit card theft and frauds, if that appeals to you.

6. Protection against Job loss (10%)

The shock of job loss is high because most people are immediately concerned about two things – “Will I get another job?” and “How will I handle my expenses for next few months?”

You can actually handle the second issue by maintaining an emergency fund that is sufficient to cover your expenses for a predefined number of months in the event of job loss. Say for example your expenses amount to Rs. 50,000 per month. You should be setting aside Rs. 3 lakhs only to be used if you lose your job. You could deposit the money in a F.D. and earn good interest on it – but it has to carry the mental label of ‘for emergency use only’! You also need to make sure you enhance your job skills and also build a strong position in your company. The ideal situation is when your employer needs your expertise more than you need that specific job! Achieving this outcome is purely in your control.

7. Protection against your Car Accident (10%)

What if your car were to be in a major accident and get badly damaged? What if it were to get stolen? What if you were to hit someone by accident and have to foot a bill of Rs. 35,000? Who will pay for all these expenses? (A similar analogy can be applied to 2-wheelers as well)

The way you can protect yourself against these risks is by taking auto insurance. Thank god it is almost mandatory in India and no one makes a fuss about getting it (like they do about term insurance).

8. Protection against loss of key documents (5%)

Make sure, that you are more careful about handling the critical pieces of paper like passport, driving license, insurance policies, property documents etc.. While doing your best to ensure you never lose them, always have a backup somewhere should you misplace the originals. The same goes for the keys to my home as well as for important emails and digital documents!