Many people have said that buying an insurance is not because someone is dead but more importantly there are people who are living. Over the past 2 weeks, I have seen and known of 2 deaths that has happened. RIP.
Its common for people to say RIP or rest in peace when deaths occur. The dead will rest in peace but will the living be in hell?
It is almost impossible for any families today to be earning only one income and having one income taken away unexpectedly is a nightmare for the living.
As an adviser, I have always advocated that financial planning be done as a family. And the usual exercise is done like this:
1. Ascertain total household expenses
2. Ascertain each income earners share of expenses
3. Ascertain how long will the surviving partner adapt to not having the other's income
4. Ascertain total amount of coverage needed for each income earner
5. Collate existing policies
6. Ascertain shortfall of coverage after taking into consideration of existing policies
7. Recommend solutions
With the steps taken above the surviving partner knows exactly what to do when an emergency happens. The surviving partner can be at peace financially knowing that the planning has been done.
Lets put into perspective:
Lets assume John and Mary is married. Their total household expenses is $2000. Yes I hear you.. its more than that but I use $2000 as an assumption.. can? I usually will breakdown these expenses into things like utilities, kids education, transportation, groceries, etc
Anyway, both of them contribute 50/50 to this $2000. Therefore the share of John is $1000 and Mary is $1000 towards the household expenses. After much discussion they feel that they will like to cover about 10 years of not having the other person around (this figure is an assumption and differs from every family).
With that using the simplest of calculation, we take $1000 x 12 x 10. Which means each of them should have a coverage of $120,000 covering each other so that in the case of premature death occuring the surviving partner will be at peace that there will be 10 yrs of $1000 per month (this calculation does not take inflation into consideration).
After going through their policies, Mary has an existing coverage of $50,000 and John has none (typical). Therefore, Mary should get $70,000 more coverage and John $120,000.
The solution that will be provided is dependent on what preference has each of them have. The few categories that can be considered are:
1. Term: high sum assured, low premiums, no cash value
2. Traditional whole life: higher premiums (pay premiums whole of life), lower sum assured, accumulated cash value
3. Limited pay whole life: highest premiums (pay premiums for limited time), lower sum assured, accumulated cash value
4. Investment Linked Whole Life: cheaper premiums than whole life plans, high sum assured, cash value determined by investments in funds.
Depending on what kind of plans John and Mary prefer, the solution will be presented. Affordability is also a factor that is contemplated here.
So these are the steps that will make the term RIP more meaningful. So sit your partner down, start taking out your policies (if you have a sensitive nose, be careful it usually dusty), collate your expenses, start talking to your partner about how long they will need to adapt not having you around. Do the simple calculations and see if you have any shortfall.
If its too much trouble, call me.. I do this as my job. And I assure you I do not charge.. yet. I can also email you a simple spreadsheet to help you do the above calculations just be you keying in all your figures. So email me, tngjinyau@gmail.com, it's free..
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