In continuation of our series on financial planning, today we bring ideas for those who suddenly find themselves single — either through loss of a spouse or some other event. The change in your marital status changes your financial status. And this change needs to be handled with care. To know more read on.
Your Life: What’s the most unpredictable thing about life? Life itself. Everything seems to be fine, you are happily married, and even have a kid or two. Living the business-as-usual, average, family life. And then, out of the blue, tragedy strikes. And, you are left ‘Suddenly Single” due to the death of your spouse. The first step is dealing with the crushing pain. But even as you deal with pain, money matters have to be looked into. After all, you have your whole life ahead of you, and if you have dependents, its about their whole life too.
Know where you stand: The death certificate is usually collected by some family member while you deal with pain. But the first step you need to take is gather all the financial documents, like insurance policies, bonds, stocks, mutual fund (MF) statements, bank records and the like at one place. Yeshwant Aangne, a Mumbai-based Certified Financial Planner, says: “Next one should make the necessary changes in the ownership of financial assets.”
You need to know you net-worth, the assets you have, the liabilities you owe, the insurance policies to claim, the banks accounts to transfer to your name, etc. Jayant Pai, another Mumbai-based, CFP, says: “You need to look into money matters within a month. Especially claiming the life insurance policy of the spouse. The insurance regulator has made it clear that insurers cannot decline claims due to delays from your side, but the sooner the better.” Once you know where you stand financially. Take the next steps.
Emergency funds: Ideally, three to six months of monthly expenses should be kept aside as emergency funds. But as you are suddenly single, you might need to keep aside a few more months' money over that. Aangne says, “If you already have three months' expenses as emergency funds, hike it to six months.” After all, you may not have a helping hand in case of an emergency.
Pay off debt: “With the life insurance claim money, pay off debts like the home loan. At least, you will have the security of a roof over your head,” says, Pai. If there is more money left, you can use it to building a retirement fund. Also, other investments like shares, MFs, fixed deposits, et al, can be used to fund your retirement kitty and child's education expenses, if any.
Adjust income and expenses: This might sound insensitive, but it needs to be told. If you’ve gone from a double income household to single income, you may need to cut out a few expenses, especially lifestyle expenses. If your income is substantial enough to maintain your lifestyle, it’s good. But not every one will be that blessed. Revisit your incomes and expenses, since if your income has decreased, so has your expenses.
Make a will: “Make a will as soon as possible,” says Pai. After all, if something happens to you as well, your children should not be left clueless.
Life Insurance: If you don’t have any dependents, you don’t need to buy a life insurance policy. But if you do, ensure you buy a term plan which covers an amount equal to 12-15 times your annual expenses or 8-10 times your annual income plus debt obligations. If you are single and in the 50s, and you have children who are not dependent on you, you don’t need to buy yourself a life insurance policy.
Medical Insurance: Get at least Rs 3- 5 lakh as medical cover over and above the medical insurance your employer offers. Next, do buy a serious disease disability policy, and an accidental death-cum-disability insurance.
Investments: “After the loss of a partner, the risk profile of the surviving partner changes. If you’ve been too aggressive, it’s time to move between slightly conservative to balanced asset allocations,” says Aangne. But not all agree. A few planners we spoke to said that if the surviving spouse is making enough money and the expired partner has left enough assets, an aggressive approach (like investing in stocks) should not hurt.
Aangne adds, “After losing a partner, you start performing a double role. Your responsibilities increase, you may not have the time and concentration to look into money very aggressively.” The logic is to ensure you don’t overexpose yourself to greater risk due to unavailability of time or mental bandwidth, especially if you have kids. Aangne adds: “If your partner has left you assets, via investments, Employees' Provident Fund, Public Provident Fund and the like, you should ensure that this capital does face a big erosion risk.” On the one hand, you lose a partner, on the other, you might have some money coming in. We suggest you stick with your new risk profile as an asset management strategy.
Retirement: The basics for any retirement portfolio are the Employees’ Provident Fund, the Public Provident Fund, and the National Pension Scheme.
If your partner was the one who managed money and now you are left to do it on your own, we suggest you take professional help to manage your money. Dealing with a loss is easier said than done. Revisit your money matters afresh; money management will never be able to help you deal with the loss, but it will surely help you and your dependents get a better financial future.
Disclaimer: The story aims to help readers with their money-related decisions and choices. Each individual has his or her own financial situation and circumstance to consider. We recommend that you consult a Certified Financial Planner before you buy any specific financial product or service.