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No one wants to think about unforeseen circumstances, but it’s necessary especially if you have a significant other who depends on you financially. Along with opening joint accounts and planning for your retirement together, factoring in unexpected events can help to support the both of you in case anything untoward happens.
From critical illnesses and disability to death, there are a few ways that the both of you can prepare financially.
After being married for a few years, chances are you will have joint assets. These include your savings accounts, investments, and insurance policies. Evaluating what you both currently have and how much everything is worth is the first step in helping you decide if you need to make any changes.
Let’s take Adam and Amy as an example. They’ve been married for 3 years and have $20,000 in their joint savings account. They also have their personal savings accounts along with individual health insurance.
After evaluating their total finances, they realise the need to bump up their emergency funds, start making some low-risk investments that can be easily liquidated, and consider purchasing life insurance plans.
Having sufficient cash savings is the most important element of weathering any emergency. Its liquidity lets you access it immediately so that you’ll be able to pay bills, put down medical deposits, and sustain you on a day-to-day basis if you’re unable to work. Because of this, cash is more useful during emergencies as compared to investments and insurance.
The amount you need will depend on your spending habits, but the general rule of thumb is 6 months worth of your expenses. Since we’re talking about your joint account, it should be able to cover 6 months of expenses for you and your spouse.
Let’s go back to Adam and Amy, whose total expenditure per month is $3,000. As they currently have $20,000, they’re in the “safe zone” for emergency funds.
While it may not be for everyone, the most relevant type of insurance when it comes to protecting your dependents is life insurance. Lump sum payouts for life insurance are upon death and total permanent disability (TPD).
Some life insurance plans will allow you to opt-in for riders such as critical illness (CI) that will issue a payout if you’re diagnosed with one of 37 critical illnesses. These illnesses vary depending on your insurance company, but include things like major cancers, heart problems, and stroke.
TPD is defined by the loss of specific limbs or organs like your eyes, hands, or feet that affects your ability to work like you did before. If you meet those clauses, the TPD benefit in your policy will give you a lump sum payout to help with your expenses.
CI is also important because many people find themselves in financial difficulty after an unforeseen medical condition that does not result in death.
Adam and Amy don’t currently have any life insurance policies, and they decide that they would both get life plans each with $300,000 payouts. This includes TPD and costs them each $300 annually.
Let’s say that Adam gets into a major car accident a few years down the line and loses both his legs below the knee. He’s told that he needs one year to fully recover since he needs extensive medical treatment. Before the accident, he was drawing an annual salary of $65,000, but the $300,000 lump sum helps to tide him and Amy over during his recovery.
Not having all your eggs in one basket is the best way to ensure that you’ll be able to reach into your investments in times of trouble. Instead of having all your finances tied up in long-term bonds or risky equities that may take time to recover, ensuring that you have investments with high liquidity will allow you to sell or redeem them for cash.
The Singapore Savings Bond is one such instrument that’s low-risk and allows redemption after a month. Another option is to invest in stock ETFs, which are relatively more stable than individual stocks as they track a basket of well-performing stocks on a stock exchange.
You can sell your shares at any time, and even if you make a small loss you’ll be able to have funds to tide you through.
With sufficient preparation, your spouse won’t have to worry should anything unfortunate happen to you, and vice versa. Having multiple safety nets is the best way to ensure financially stable ground through difficult times.