Have you thought of how to financially provide for yourself and your family during unpredictable events, such as the death or disability of the breadwinner?
It is difficult to talk about such topics, especially in Asian Cultures which regard it as inauspicious. However, it is necessary as life is unpredictable, and we should always plan for contingencies.
The financial needs which a person normally has are:
- Emergency fund
- Income needs upon death of breadwinner
- Estate clearance fund
- Debt retirement
- Educational fund
- Retirement income
- Accumulation needs
- Other needs
Emergency Fund
Emergency fund is reserved for use in times of crisis, when there is a crucial need for money. Examples of crisis include the sole breadwinner’s job loss, or total and permanent disability to the breadwinner.
Income Needs upon Death of Breadwinner
When a breadwinner passes away, the family will need to find an alternative source of income to pay for essentials (eg. transport, food, utilities, taxes, medical costs) and non-essentials (fine dining, car, travel, gifting, etc).
In general, income needs can be present during the following periods:
- Re-adjustment period – This refers to the period after the death of a person, when the family may need to adjust to the loss. It may involve the spouse temporarily leaving work to recover emotionally. The family will need income to get by during this period.
- Family dependency period – During this period, the children of the family will have to be taken care of. The period ends once all the children become self-supporting.
- Pre and post-retirement period – The period after the children become self-supporting until the spouse’s death. If the spouse is not working or is not sufficiently remunerated in his/her work, provision of income will have to be made.
- Disability period – Income needs that arise when a person is disabled. It consist of both his personal needs and the needs of his family.
Estate Clearance Fund
This is a fund that is used for expenses immediately incurred upon a person’s death. By having sufficient funds, existing assets belonging to the estate need not be sold on unfavorable terms to pay for such expenses. Examples include medical expenses, income tax, funeral expenses, etc.
Debt Retirement
Many people who own property in Singapore, do so by taking a mortgage loan. If the owner passes away, the owner’s share of the mortgage liability will be borne by his estate and ultimately his/her family. If the owner has made arrangements to pay off such liabilities in the event of premature death, it can avoid adding unnecessary financial burden to the family.
Education Fund
Most parents have high aspirations for their children and want them to get tertiary education. Tertiary Education can be expensive, and the cost depends on the school enrolled and course taken. When the children are still relatively young, you should start a savings and investment plan to accumulate the necessary funds for their future education.
Retirement Income
This is income you need to satisfy your retirement needs.
Accumulation Needs
Examples of accumulation needs are buying a house or car, starting a business, or giving to charity.
Other Needs
This includes any need not discussed above. Examples include the loss of a spouse who is a homemaker. Additional cost may be incurred to hire a maid to do the chores previously handled by the spouse. Another example is a family member becomes critically ill. Medical cost will be incurred.
It is important that we plan for “rainy days” because life is unpredictable. We recommend that you talk to a financial consultant to understand more about your insurance needs.
Contact us for professional consultation today.
