Wealth preservation is about managing your assets in such a way to make sure that it does not decrease in value. And after a lifetime of hard work, you want to ensure that as much of your wealth is protected.
Of course, optimising and growing your existing wealth is also a key task unless you plan to work for money all the time.
Wealth, just like your health, must be carefully preserved, and successful planning will help make your wealth last for you and your future generations – in case the unexpected happens.
One of the means that we can ensure our wealth is preserved in case something happens to us is insurance.
Demand for insurance as a low risk wealth management tool has seen a spike in recent years. The approach to insurance is also changing, with people from the middle-income group to wealthy families shifting perceptions on the need to protect their potential future income, as well as preserving their wealth for their next of kin.
When you read that insurance is a good instrument to preserve wealth, what exactly can it help you preserve?
Preserving Your Current And Future Income
The Covid-19 pandemic has made a strong case on the notion that nobody really knows what is coming around the corner.
Just imagine that if you pass away during your good earning years, your family could suffer a severe economic loss as a result of losing your current and future income to support them. In this unfortunate ‘fictional scenario’, your family would still have to pay their regular bills, including mortgage(s) and your outstanding debts.
They will also still have to continue accumulate funds for your family life goals, such as children’s education and retirement funds for your spouse. If you did not insure against this, you may leave your spouse or children in a very tight spot.
Preserving Your Dreams / Life Goals
For some people, this is also as good as preserving your family dreams. In this instance, insurance acts as a financial safety net that helps you financially protect your loved ones.
It also enables them to continue living with minimal worry, especially when large financial burdens like medical bills, mortgage, debts and others would easily change the financial status of your family.
Preserve Lifestyle During Difficult Times
We never know what life has in store for us especially while we are still feeling fit and healthy. No one likes to think that something bad will happen to us, and when something bad does happen, the first thing we usually say is “Oh no, he / she is so young”.
Illnesses and accidents are not age-specific. These are random events that could affect anyone.
But if you could not work due to a serious illness or accident, how would you manage financially? If the worst does happen, insurance helps you to minimise the financial impact on you and your family.
For example, if you need to give up work to recover from illness or if you are permanent disabled, the insurance could be used to help pay the household bills, mortgage, or even supplements, giving you and your family a peace of mind when you need it the most.
Recovery Takes Time
In a good ending, a person who is seriously ill may triumph in the fight against the illness, but, this person may not able to return to work immediately. All of these could incur many costs.
It is kind of heart-breaking to contemplate a situation where you survive a serious illness but fail to survive the financial hardship. This may be a time this person might have hoped he or she did not conquer the illness.
Obviously, you do not want an unexpected event that could easily change the financial status of you and your family. Preparing for the worst is not something we want to think about when we are feeling fit and healthy.
However, you will not suffer for thinking about it and preparing for it first. It is much better to be prepared, than to be in despair.
Preserve Your Legacy And Wealth
People are also promoting insurance as a tool to ‘create’ wealth, not just preserving it. Having adequate insurance that can help to repay your debt the moment you kick the bucket, can help ensure your assets get to pass down to the rightful beneficiaries.
Your family do not have to lose the assets such as your house due to their inability to redeem the loan from the financier. In time when the estate of the deceased is frozen pending the estate administration procedure, the proceed from insurance can help ensure life goes on for the surviving family.
If you are concerned your family may mis-handled the insurance claim, you can also have a proper legal structure to preserve this wealth. Through an insurance trust, you can decide the way how and when you distribute your wealth without actually physically transferring to your next of kin in a lump sum payment.
The trust assets are actually placed under trust to avoid your next of kin spending all of your wealth in few years when it took a lifetime to accumulate it.
Insurance And Your Life Stage
As you move on to different stages or wealth status in your life, the need for insurance will inevitably change.
One of the common questions people usually ask is “How much insurance I need?”
It really depends on your circumstances. There is no one size fits all solution and the amount of cover and how long it lasts for, all these will vary from person to person.
There are some events when you should consider reviewing your insurance needs:
- Buying new house with your partner;
- Building a family;
- Having children;
- Change of lifestyle i.e. salary increases;
- Covering loans;
- Reaching retirement;
- Starting a new business;
- Entering into a civil partnership;
- Changes in business ownership;
- Creating wealth to next generation;
- Transferring wealth; and
Clarify What Insurance You Need
Safeguard and preserve your wealth and then look at what types of insurance that you need to preserve your financial status.
It is important to manage your wealth and ensure you set aside a portion of your income to buy insurance, but don’t overcommit too.
It is advisable to seek for advice on how to optimally insure yourself and preserve your wealth against all the possible events that could disrupt your life.
About the Author
Keah EeWen is a licensed financial planner with VKA Wealth Planners Sdn Bhd