Financial Well-being and Peace of Mind for Your Family AFTER you are not there — Part I

This series of articles are most likely to be bitter medicine, you will hate reading it and yet you will feel better later.

Last 17 months the world has seen millions of deaths due to COVID-19, many more million families and lives got shaken up real bad due to the passing away of their loved ones.

Many of these millions were the single earner in their family. In some families, both earners passed away.

While passing away is a massive void that can never get filled, there are other immediate issues such as how will the house run in absence of the earner? What about Loans? Were there any insurance policies? Were there any assets, investments, etc? You get the drift…

In my family itself, I lost a cousin of mine in Dec’20 who is survived by his wife, his son (18 years) and a daughter (9 years). Later, I leant that this cousin had maintained and shared a document of all incomes, expenses, investments, loans, assets, insurance policies etc with his Wife. Being a single woman who is not working, with 2 kids to feed, pay bills, pay school fees, etc is not easy and yet what my cousin had done greatly helped her and not add to her existing misery.

In this Part-1, I will talk about a simple low-cost product that will get you peace of mind. This is something you MUST do to ensure your dependants — Spouse, Kids, Parents, etc don’t get burdened and worried even more. You not being there is a significant one as it is.

If you have a spouse who is working, please share this article with him/her too.

Life Insurance

This is the single best investment with an astonishing rate of returns. If you are 25 years old, a 1 Crore Term Plan will cost you between 6- 10k depending on which Insurer you go with. Assuming you pay 10k and for 50 years, it comes to 5 lacs. After your death, your family/dependants will get 1 crore. That’s 20x the amount you paid. If something happens early this 20x will only increase. And unlike other insurance, the premium amount is locked in.

The best time to buy a policy is NOW, though as you grow older the Annual Premium increases.

Buy a Term Plan, pure insurance, don’t mix n match with investments, riders, money-back guarantee etc. After your death, your Family/Nominee gets X amount as Sum Insured, simple.

Don’t fall into the trap of applying the logic of what is the use when I can’t get this money back while I am alive. Well, that is not even the point of this product. This amount is going for your peace of mind that your dependents will be taken care of financially at least.

Also, even if you have a policy provided by your Employer, do buy a separate independent policy nevertheless.

Depending on your situation, I highly suggest taking multiple Term Insurance policies keeping Dependants and Debt separate. (Thanks to CapitalMind podcast for this approach)

Let’s get into some details.

Dependants — Parents, Spouse, Kids, etc

Sum Insured for Dependants should be at least 10x your current annual income which will take care of their day-to-day needs for a while. Be practical and keep in mind expenses like Health, Education, Holidays, Marriage, etc.

Keep in mind inflation too. Let’s say your Annual Expense is 1 lac. With 8% annual inflation, after 9 years this same expense will double to 2 lacs. It’s called the Rule of 72, Google it, it's simple Math.

Debt — Any loan — home, education, vehicle, jewellery, personal, loans from friends/family etc

Sum Insured for Debt should cover ALL your loans without passing any to your family. If you have a 1 crore debt across all your loans, buy a policy of 1 crore so that this takes care of all of it.

For each debt, take a new policy, if you have a car loan and home loan, for example, take 2 policies to cover and pay off both the loans when you are not there.

It’s surprising with such a low-cost product, many people don’t utilise this to the fullest.

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Hope this article was helpful and will push you to buy Term Life Insurance at the earliest.

Do share it forward so that more people can buy peace of mind for themselves and their dependents/family.

If you are still unsure or have any doubts, please feel free to reach out or leave a comment. Personal Finance topics interest me deeply and I will be happy to help you.

In the next article, I will talk about another very important aspect of — how to share the visibility of all your Financial Instruments with your family/dependants.