The Covid-19 pandemic has affected everyone adversely. Each one of us likely knows someone who passed away or has had a near-death experience due to the pandemic. Untimely demise of a friend/family member/colleague also puts our own mortality into perspective.
While you must take precautions and avoid getting infected, you must think through the various “What ifs” too.
WHAT IF something happens to you? Does your family know about your investments and insurances?
WHAT IF they don’t make a claim under your term life insurance policy?
WHAT IF your family CANNOT access your investments in your absence?
WHAT IF your family CANNOT manage the money properly?
Wouldn’t this jeopardize years of your meticulous investment planning? How does this affect the well-being of your family? Wouldn’t your family suffer?
How do you ensure that your family does not struggle to access your investments and insurances?
Well, you need to take care of the following three aspects.
(1) INFORMATION: Your family must know about your investments. If the family is not aware of your investments, they will not even try claiming them. And this happens. As of March 31, 2018, an unclaimed amount of over Rs. 15,000 crores amount was lying with insurance companies. While the information is slightly dated, this gives you an idea.
Remember, this is just for a limited set of insurance plans (traditional plans and ULIPs). For term plans, even the insurance company would not know since the claim is contingent. Apart from this, there are a whole host of other investments (MFs, bank FDs, small savings, etc) that may be lying unclaimed.
(2) ACCESS: Your family must be able to access such investments. A Will, proper nominations or the right holding pattern will help your family access investments faster.
(3) MANAGEMENT: Your family must be able to manage the money. Or else your work is undone if the family makes poor investment choices.
#1 What INFORMATION to share with your family?
Everything about your assets and liabilities. Here is the list of most common items.
- Your insurance policies (Insurer and policy number, Policy document, receipts etc).
- Your bank account details (Latest bank statement/passbook, account number)
- Bank Fixed Deposit details
- Mutual fund investments (AMC, Folio number)
- Demat account details (Broker, demat account number, portfolio)
- PPF (Account details), EPF (UAN), NPS (PRAN) details
- Real Estate investments (registration papers etc)
- Your businesses, partnerships etc.
- Any other investment (hand loan to friends/family)
- Loans (outstanding amounts, EMIs etc)
Sharing information about your liabilities is also important. Your family would not want to default on any of the loans. And that is where the proceeds from your life insurance plan should first go to. Moreover, if you have taken a hand loan from someone, you would not want your family to be taken advantage of.
#2 How to share INFORMATION with your family?
#1 The best is to involve your family (spouse, kids, sibling, or a parent) in your investment decisions. Easier said than done. However, the more involved they are, the more aware they will be. Not only will the access to investments be easier, but they should also be able to MANAGE money in your absence better.
#2 Prepare a physical folder for your investments and insurance data. Keep print out of your insurance policies and investment statements in that folder. On a regular basis, open the folder and discuss contents of the folder with the spouse (or a family member).
#3 Prepare a folder on Google drive, keep copies of all your investments and insurance related data. Share access with spouse (or a few other family members) or a trusted friend.
Your investment data will keep changing. Thus, keep updating the physical folder/Google data on a regular basis (say, every 6 months).
Not everyone is equally tech savvy. Do keep this aspect in mind.
In my opinion, use a multi-pronged approach. A physical folder/file is a must. Keep soft copies of policies and investment statements, along with an excel with the list of all the investments in Google drive.
Moreover, add a crisp document about how you want your life insurance proceeds to be used and how the investments should be managed.
There are good initiatives by insurance companies, where they have provided formats for listing down information about your finances. You can download The Little Book of Legacy from HDFC Life OR iCare booklet from Aegon Life.
These are editable documents. So, you can enter data once. Keep the document in Google Drive. Additionally, take a printout and keep in the physical folder. On a regular basis, keep updating the file with the latest information.
#3 Who to share INFORMATION with?
You might feel that your job is done if your spouse knows about it. Not really.
What if something happens to both of you together? And that is possible since you stay and travel together.
Therefore, it may help if you share this information with a couple of family members (kids, siblings, parents) or a trusted friend.
I understand you may NOT be comfortable sharing your finances with everyone. However, spend time in building such trust and relationships.
#4 Get your nominations right (ACCESS)
You are required to enter nominations for each investment. So, that is unlikely a problem.
Still, spend some time and ensure that the nominations are updated in all your investments.
You may also want to update nominations as you go through various life events.
For instance, before marriage, your mother or father might be the nominee in your account. After marriage, you might want to change nomination in favour of your spouse or kids. Sometimes, the nominee may expire before the investor. Such events too shall require nominee updation.
Improper nominations can cause family disputes later.
I usually ask my investors to open their investment accounts in Anyone or Survivor mode. This ensures that, even in the event of demise of one of the holders, the second holder can at least operate the account (bank or investment accounts). Easy to access investments in such a case. Note this approach has certain caveats. Since the joint holders have equal ownership of the assets, this approach can be a problem in case of separation or a family dispute.
#5 Consider writing a WILL
A Will describes how your assets will be distributed among your family after your demise.
Drafting a proper will is extremely important if you foresee your family fighting over your wealth. Even otherwise, this is an important succession document since it will list down all your assets.
Note, a nominee is merely a trustee who holds your investment until the legal heirs come and claim money from him. So, your job is not done with just getting your nominations right.
There are sample wills available online. You can find one on this link. You can fill in the details and sign the Will in front of two witnesses. However, to avoid any complications later, I would suggest that you take professional assistance from a lawyer in drafting a will. There are online sources such WillJini, where you can get professional assistance in preparing a will.
If you wish, you can get the will registered. You can share a copy of the will with legal heirs.
#6 Just accessing the investments is not enough (MANAGEMENT)
Your family can still mess up the finances, ruining your years of hard work.
Mis-selling is rampant in financial products.
Making money decisions is not easy. For someone who has never made any investment decision, managing a large sum of money is an insanely difficult job.
While the investments can simply be transferred to the family’s name and continued, the spouse/family needs to make a fresh decision about life insurance proceeds.
As soon as the life insurance amount gets credited to your bank account, expect a barrage of calls from the bank RMs. It is not difficult for the family (already under such emotional stress) to make wrong investment choices.
#7 If you work with a financial advisor
This is not to suggest you must work with a financial advisor.
However, if you do, you must share the details of your investment advisor with your family. Such details could also be put in the physical folder/Google drive folder.
And just sharing the details may not be enough, it takes time to build trust in money matters. Therefore, it will help if your spouse (or someone in the family) can be part of your discussions/meetings with your advisor.
If your spouse (or a family member) is comfortable with the advisor, she/he can reach out to the advisor and inform about the tragic event.
A trusted advisor can help in all 3 aspects.
He will likely have KNOWLEDGE about all your investments and insurance plans.
He can help your family not just in ACCESS(ing) your investments but also the MANAGE(ment) part.
There will be continuity in investment planning too.
Similarly, if you have an insurance agent, he can help your family with insurance claims.
Now that you are here, please scroll down to read super comment from Ninan, where he shares his insights and experience. Very illustrative and useful.