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Importance of financial planning for young families

07 Oct 2014 
SOURCE: Wilfred Ling

There was a case in which a lorry driver Jason Lim Wei Kwan drowned when the lorry he was in slid off a barge and sank into the sea off Pasir Panjang Terminal (“Husband's drowning: Mother of four sues firms for $400k”, Straits Times, 6 October 2014).

The surviving widow Ms. Samai Chatthahan, 30 and a mother of four children decided to sue the parties involved for $400,000.
Unfortunately, the couple had applied for a flat prior to the accident and that plan is now in jeopardy. Although not mentioned, they may not have sufficient protection planning done. If she wins in the lawsuit, the money would help her and family pay for the new flat and meet their expenses. If she losses the lawsuit, she gets less or nothing and become poorer after paying for the legal fees.
Ms. Samai is now a cleaner earning just $1000 a month.
This case is a reminder that it is important for a family to insured themselves adequately. If the couple had insured themselves adequately, the affordability of the new flat would not have been an issue.
I have done quite a number of financial planning for young couples such as this case study. Many young couples had just applied for a Build-to-order (BTO) flat and paid the 5% down payment and stamp duties. During this period of waiting for the second down payment and handling over the keys, the Home Protection Scheme has not kick in because no loan has been disbursed.
Side note: Home Protection Scheme (HPS) is a reducing mortgage insurance covering death and permanent incapacitation (before age 65) and is compulsory for those using CPF savings to pay for mortgage instalment for their HDB flat.
If something happens to one of the income earner during this interim period, the purchase will be in jeopardy because of not able to afford the loan due to the loss of income. To overcome this issue, I advised some of my clients to insure themselves for the amount equivalent to the price of the property using say a 5-year term insurance once they have made their first down payment for their BTO. The price of a 5-year term can be just a few hundreds of dollars only and is more than enough for interim.
Besides protection planning, a young couple should also:
1. Ensure they do not overcommit their resources to the first home (i.e. credit management)
2. Ensure they have a proper wills written with testamentary trusts so that their children will be taken care off in the event if both parents are not around.
3. Ensure they do not commit too much into insurances. In fact, those who are paying too much for insurance are normally underinsured because it is likely they bought saving plans, not protection plans.

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