On Christmas day, a 3 years old Evan Lim lost his entire family to a car accident in Johor. His father, Mr Barnabas Lim was just 45 years old. His mother Kristen Ng was 39, and his brother Rayshon Lim was 7 and they were all killed in the car accident.
On another unrelated car accident that happened in 2013, 56-year-old taxi driver Mohamed Amin Abdul Manap was injured by another car which the driver Lim Wei Hong felt asleep while driving. The victim injured his spine and was paralysed. He was hospitalised for nearly a year before he died of pneumonia at Changi General Hospital on April 18, 2014. After 3 years of legal battle, the deceased’s wife Madam Josephine Cerdan Manap, 51, received a compensation of $240,000 but only get $160,000 after deducting for legal fees for the lawsuit and the administration of the husband’s estate. 4 months prior to the accident, the widow’s 14-year old daughter died from brain cancer. Right now, she only has a 15 years old son left. The widow, a former housewife, has to work as a housekeeper earning only $800 a month. The compensation will help her pay for the $100,000 mortgage loan and the rest of $60,000 for son’s education and living expenses. Her son repeated Secondary 3 because of the tragedy of losing half of the family.
These two car accidents show how important it is to have a financial plan especially for those who have dependents. Here are the things that you should do if you would like to ensure your family are taken care of in the event of a tragedy:
- Make sure you have made prior arrangement for at least one guardian for your children. This can be done through writing a will. As the appointed guardians can refuse to act, make sure you get their consent first.
- Ensure that your will has testamentary trusts so that assets are held in trust for your children in the event of your demise. For example, you can specify in the testamentary trust that your house cannot be sold and is to be used for your surviving children to stay until they finish school. In this way, your relatives will not be burdened of the responsibility to find a place for your children to stay.
- Executors and Trustees in your will should not be significantly older than yourself as you may outlive them. Appoint substitutes executors and trustees. Make sure substitutes executors and trustees are unlikely to travel together as you may end up in the situation which all the executors and trustees die in a common accident.
- Make sure your will is accessible by your family members. No point having a will when it cannot be found.
- Make sure your family have sufficient insurance coverage in three areas:
- Death/Total Permanent Disability: The income earner should be covered for this so that the surviving family can continue with the same standard of living in the event of the loss of income of the income earner. For example, if the mortgage loan is $500,000 and the projected living expense of the family is $8000 a month and the average years to support your dependent is 23 years, the required insurance coverage is 500000 + 8000x12x23 = $2,708,000 without taking into account of time value for money. Remember to factor in legal fees. The legal fee for the widow of the taxi driver was $80,000!
- Health insurance: hospital & surgical insurance and critical illnesses are health insurance. This is to pay for all the medical bills - inpatient and outpatient. Imagine if you or someone in the family needs to be hospitalized for one year!
- Disability income insurance: This is to protect your income should you be unable to work in your own occupation due to either sickness or accident.
- Finally, remember that if your spouse is a housewife or househusband, he/she is your dependent too.
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