Please read about Human Capital in the blog here. We ended with a question for you, what do you do to protect your Human Capital? Should we even protect it?
Adverse scenarios – Several scenarios can affect your human capital adversely and it is not possible to list every one of them. But some of those adverse scenarios are:
- Loss of employment
- Permanent disability
- Death
Human Capital Protection
- Up-skill ourselves – Making sure we learn new skills which are in demand and which pays us well in the future is a definite way of ensuring Human Capital is not lost.
- Insurance against Permanent Disability – Now this is probably the only way you can ensure that your Human Capital is protected and your family doesn’t bear the brunt of you becoming unemployable (and probably need a lot of Financial capital to be burnt to take care of you)
- Life Insurance – The only way you can make sure your Human Capital is not for your family is by taking a Life Insurance commensurate with the Human Capital lost due to the death.
Firstly there are many types of Life Insurance like Endowment plans, Cashback plans, ULIP, and Term Life Insurance. The key is to take insurance which is enough to cover a family which has just one primary earning member. Please read the blog where we talk about how to separate Insurance and Investment here.
Furthermore I want to touch upon a very key issue that I am seeing (and experiencing) when a child is born in India. Immediately there is a big push by the family or relatives to go and buy Life Insurance in Child’s name. Remember, we just learned that Life Insurance is for protecting the Human Capital of the insurer. When a kid is born, what is the Human Capital of the kid at that point? ZERO! It’s many many years into the future before the child becomes an adult and starts earning.
To conclude, Parents Human Capital Protection is the key till the child becomes independent. Do let me know what you think about this.
