Like any other ordinary family, Ms Tan Mei Mei, aged 35 and her husband Hwee Chye had a happy family of three children. Two of the children were twins born in 2004. Like any other family like yours and mine, they must have similar aspirations. Tragedy struck in 2005 - her husband died just one year after the twins were born leaving the widow to take care of herself and the three small children. Her story was published by WiCare website at this link HERE. Her article will move you to tears when you read about a widow’s struggle with life from then onwards.
In the article, I noticed many lessons which we can identify and learn from. Here are some things we can learn:
Lesson 1 – Manage the risk, not avoid it altogether
“When Tan Mei Mei, 35, gave birth to twins in 2004, it seemed life couldn’t be more perfect. She had an adoring husband, a three-year-old girl and then twin boys to complete the picture…. But fate cruelly snatched her husband, Hwee Chye, 43, away from the family just a year later.”
Most of us live in a world of seemingly perfection. Husband and wife have good jobs and both are happily married to each other. Children are growing up and both parents are preoccupied with the children’s progress. Initially parents’ duties are to support the children’s basic physical needs when they are young. Later on, parents also have to meet the children’s emotional, intellectual and social needs. The assumption is that these will carry on undisrupted. Unfortunately, this is not always true.
There are three risks that everyone faces everyday: (1) Risk of death. Death is 100% guaranteed, it is only when. (2) Lost of job. Employment is not 100% guaranteed as it depends on the profitability of your employer which is as volatile as the stock market and (3) risk of ill health. These risks will stop you from providing the physical, emotional, intellectual and social needs of your children.
The lesson we can learn is this: It is not possible to avoid all risks in life. The question is how to manage these risks. Thus, financial planning is about managing risks and not about avoiding it altogether. Unfortunately, risk management is only effective when it is done prior to the occurrence of the risks you wish to manage. Nothing much can be done after the fact.
Lesson 2 – It can happen to YOU
“You always read about women being widowed, but you’d never expect it to happen to you.”
Most of us thinks that death, ill health or lost of job will only occur to someone else and will never occur to our family. Unfortunately, Mother Nature confers no such privilege to anyone. Again, financial planning is not about avoiding this risk altogether but it is about how to manage such risk if it does happen to YOU.
Lesson to learn is: Unfortunate events can happen to YOU.
Lesson 3 – Ensure sufficient assets in the estate
“As the family now lives on Mei Mei’s income of just over $3,000 compared to a combined income of more than $10,000 before, she had to make adjustments. Downgrading to a smaller flat helped her save on utilities and conservancy charges. She compares prices when buying groceries. For example, she goes to Carrefour to buy nappies in bulk.”
It appears to me in the above that this was a case of insufficient insurance coverage. With proper insurance coverage, there is no need for surviving family members to cut down on living standards. While it is morally weird to live a lavish lifestyle by benefiting from an oversized life insurance payout from the decease, it is also not necessary to suffer financially. The emotionally devastation is already difficult to shoulder. Having to be worried about finances will only add to the heavy burden.
By my experience, I’ve never come across anyone who is insured reasonably and paying premium at a reasonable price. In all cases of financial planning, my clients were underinsured and paying extremely hefty premiums. It is a fallacy that you need to pay high premium for high insurance. Actually, if you are paying hefty premium, it is likely you have bought into saving plans rather than insurance.
For insurance related to death, it is only necessary to buy a cheap term insurance. It is not necessary to cover death claims for life since one should not have liabilities and dependents when old. This is the crux of the problem – many financial advisers are not willing to sell term insurance because commissions are negative after taking into consideration of the advisers’ time and effort. If your financial adviser refused to sell you a term insurance, you can always walk directly into the insurer’s business center to buy directly. However, avoid group insurance as it is not guaranteed renewable.
Lesson 4 – Estate Planning is a MUST
“Seven months after Hwee Chye died, when the probate to execute his will was granted, Mei Mei sold their executive flat and bought a three-room flat near her mother’s place”.
Fortunately for Ms Tan Mei Mei, her husband had a Will. Otherwise, the application for Letters of Administration could take much longer than seven months. This lengthy period of at least seven months reminds me that it is important for a person to have sufficient money for emergency cash to tie over this crisis period. Do not forget that bills still have to be paid even if the decease’s estate has not been settled. Moreover, such emergency cash should not be placed in joint-accounts. One particular bank in Singapore will freeze the joint-account if one owner dies. Most of us assume that the surviving owner of the joint-account will have the immediate rights to be able to make withdrawal. This is not true for one particular bank.
Significant complexity will occur if both husband and wife pass away such as in a common accident. ALL parents I know do not have a backup plan if their children become orphans.
The lesson to learn is: Estate Planning is a MUST. Unfortunately, most people have not done estate planning as they assume everything is “autopilot.” Nothing is autopilot, you have to be the pilot even if you are dead. You can only do this if you have an estate plan. In my years of experience, I’ve never come across anyone who has done any estate planning. To me, that’s no different from gambling at the casino in which you bet that nothing will ever happen to you but will happen to someone else. Also, writing a Will isn’t estate planning as it is merely a tool.
Prior to the abolishment of the estate duty on 15 Feb 2008, many financial advisers appeared to provide advice on estate planning. But actually most of the time those advice were to sell products to reduce estate duty. Normally this was done by selling a life insurance or single premium under Section 73 of the Conveyancing and Law of Property Act. After the abolishment of estate duty, hardly any financial advisers ever mention the need for estate planning since they can’t a sell product. Estate planning isn’t about products - it is to make sure your dependents and love ones continue with their livelihood even if you are not there for them.
Should my children become orphan, not only will the children’s guardian receive a cheque every month as allowance, but my children will receive a birthday gift every year so that they would know that their parents loved them even though neither parents are alive. This is how sophisticated an estate plan can be.
Like all aspect of financial planning, estate planning cannot be offered by amateur financial advisers.
This article also appears on CPF Board's website:http://www.cpf.gov.sg/imsavvy/blog_post.asp?postid=423607202-91-1954571008
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