Unlike many young professionals, SK, a 27-year-old Mumbai-based financial services professional, started investing early in her career. Age was on her side and considering her long-term horizon, she mainly invested in equity mutual funds. Her plans were on course until her mother was diagnosed with breast cancer in 2017. Little had SK, who did not want to reveal her full name, recovered from the shock when her father too got diagnosed of prostrate cancer later the same year. Though her parents had health insurance, which took care of in-patient treatment such as chemotherapy and surgery for her mother and radiation treatment for her father, the policy does not cover the hormone therapy (cost: ₹30,000-35,000) that her mother has to take every month or the injection (cost: ₹15,000) her father has to take every three months.
By then, SK had realized she couldn’t keep all her money in equities because her money goals were not just long term and now included her parents’ treatment in the short term. But what radically changed her financial portfolio was when she herself got diagnosed of non-hodgkins lymphoma, a type of cancer, in 2018. “My outlook has changed. Normally one would look forward to marriage and children, but my illness is likely to put off potential suitors. My goals are now taking care of my parents in their old age and my own retirement," said SK. She is now on what is called “maintenance treatment" and has to pay for it out of her own pocket.
Whether it’s your loved ones or you yourself—getting diagnosed with a serious ailment can be a life altering experience. Such unwelcome change may force you to re-evaluate different aspects of your life and relationships, but it can hit your money life and goals the hardest. That is why in such situations, it is important to review your financial goals, asset allocation and estate planning.
Other than getting yourself insured, having an emergency corpus for unplanned emergencies is very important and is a financial goal everyone must have. “Medical treatment can include a lot of out-of-pocket expenses even if you are insured. A good emergency corpus will allow you to meet them and also take a break from work, if necessary," said Prakash Praharaj, founder, Max Secure Financial Planners, a Mumbai-based financial advisory firm.
While having insurance and an emergency fund is a must for all, other goals may need to be reviewed. In SK’s case, marriage and having children are no longer front-line goals.
“As a first step, the person should take a comprehensive look at his or her financial goals and outline the most essential ones such as medical treatment. This can involve certain difficult decisions like mortgaging your house. However, health necessarily takes priority over other distant objectives," said Mrin Agarwal, financial educator and founder director, Finsafe India Pvt. Ltd and co-founder of Womantra.
Rushabh Desai, a 30-year-old Mumbai-based financial professional, had to re-evaluate his life goals when he was diagnosed with a rare muscular disorder called GNE Myopathy 11 years ago, when he was in his final year of graduation. Desai, who now uses a wheelchair, no longer has set financial goal for his clinical trials. “The clock has been ticking for me. There is no established treatment regime and I have had to sign up for clinical trials in France, Israel and the US to get some relief," he said. The disorder causes loss of movement in his limbs. Over time, Desai has lost movement in his legs, and the condition is likely to worsen.
According to SK, a life threatening condition can not only change your plans and dreams for yourself, it can also put a lot of pressure on your finances and career. “My father had to take radiation therapy for 60 days. He would go to work straight after. Neither my father nor I missed a day of work. For many people, this career hit takes a much bigger toll," she said.
Desai continues to work for the passion he has in the field of personal finance and financial planning. “If I can set up the right infrastructure, sky is the limit for me," he said. “I just need someone to help me with physical tasks but the principal work which is mental is not affected," he said.
Re-jig asset allocation
Once you have reassessed your financial goals, you will also have to rejig your asset allocation. SK’s investments have changed drastically. “I no longer hold a pure equity portfolio and have a mix of very short-term investments consisting of liquid or ultra short-term funds and equity mutual funds through SIP for my retirement," she added.
You may need to get out of long-term assets like equities or real estate and invest into short-term liquid assets like bank fixed deposits or liquid funds to pay for treatment or living expenses (if you have quit work).
Don’t delay this process as illiquid assets like real estate can take a long time to sell. “If a client is diagnosed with critical illness without adequate insurance cover or liquid assets, I ask them to consider selling their gold or real estate investments. If they recover, the surplus funds can always be invested in equity or debt," said Praharaj.
Another key requirement of paying for treatment is liquidity. If your money is stuck in real estate, it may not be available when you need it. In comparison, you can redeem from open-ended mutual funds on any business day. “In general, I would shift a critically ill client out of equity. But a lot depends on the amount of wealth and their individual preferences. Many families like the idea of bequeathing shares," said Nishith Baldevdas, founder, Shree Financial, a Chennai-based independent financial adviser.
Desai’s condition has had a bearing on his investment outlook. Staring at the possibility of being completely handicapped, the priority for him is to ensure that his money life doesn’t follow the same trajectory.
“I am able to invest 50% in equities and reap the benefits of compounding. However, this is due to my accumulated savings which can pay for my medical and living expenses. For clients of mine who are differently abled, to reap the benefits of long-term compounding, I recommend an equity allocation of 10-20% since they need to pay for their recurring expenses like treatment, physiotherapy and other support and for others who are more financially sound can take higher exposure in equities. A lot depends on the circumstances of each individual," he said.
A good financial plan consists of a Will that clearly mentions how you want to bequeath your wealth. The importance of having a Will can’t be stressed enough, but it becomes all the more important if you are suffering from a critical illness. A sudden disorganised succession can sow confusion and possibly discord within homes. “Families should ideally have a Will and succession plan in place," said Baldevdas.
In addition, ensure that the nomination for your various assets is done. “If someone who is critically unwell is without a Will, the family can consider doing an informal noting down of assets and their division as an alternative. Whether or not there is a Will or informal note, family members and heirs should be made aware of the assets and liabilities of the person," he added. This will make it easier for your family to manage inheritance on your demise.
The chances of contracting serious illnesses rise with age, and can often present a daunting financial challenge. However, having a good health insurance policy, a substantial and gradually increasing emergency corpus and solid succession planning can mitigate the financial impact on your family.