In our modern world, most us cannot avoid debts. As property prices soars, we cannot afford to wait till we have enough money to buy it in cash. What should we do? Borrow from banks. Just take a moment to reflect on ourselves. At some point in our life, there will be a moment where that we start to borrow, it might be from the first house loan, car loan, installment plans for stuffs or even a vacation trip. Paying it back is what we called commitments. But with the invention of Credit Cards and also EPP (Easy Payment Plans), it seems that to many, clearing such commitments is a chore itself.
What causes all this? We can blame economy all we want, we can blame on our low income or inflation. But what is most important, are we doing anything about this? One should stop spending more than what they can afford; this is what we always hear. What about necessities such as house or mode of transportation? Remember the first time moving into your own house? Remember on the expenses of weddings? The necessities are translated to plastic debts.
What can we do? This is what I’ve seen over the past 4 years as a Wealth Planner. Our lives are fragile, thus anything happened to us, and the burden of the debt will be carried by our future generations. That is why banks are offering MRTA (Mortgage Reducing Term Assurance) to prevent families that lost their breadwinner from sleeping on the streets. What about other form of debts? This is where a Life Insurance can come and help.
By using Life Insurance itself how are we suppose to address this? In Malaysia while MRTA is not mandatory, some banks will be reluctant to offer a housing loan without this. But other forms of loans and debts are not required to be insured. And many people I’ve met, their spouses don’t even aware on their level of commitments. Let us list down the form of commitments:
- Housing Loans
- Car Loans
- Personal Loans
- Business Loans
- Credit Card Debts
- Installment plans
- Child Education Plans
Using life insurance’s Basic Life Insurance, we can cover the amount of commitments above. Upon passing of the dearly ones, the monies will be used to cover the debts. How much is enough? That is the next question that I’ve always hear from my clients. A minimum target should have to cover for all the debts the client has. The remainder will be set upon the client itself whether they should leave monies for their spouses for his/her daily living expenses. Clients with non working spouse definitely need to be insured more. With this, one can avoid inheriting debts to the future generation.
What is most important is the education itself. Life partners should be well prepared as the time comes; so that one knows where the monies should be diverted to. This is where WE as advisors will come in to help.
written by Edmund Woon