Is Your Family Aware of Your Insurance and Investments?

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Let's begin with a small story. Sudhir is a 30-year-old working professional, and he lives with his parents, spouse and two children in their family home. His father, who is also an earning member of the family, built the house 10 years ago by availing a home loan for this purpose. The loan, taken in Sudhir's father's name, still has another 10 years to be fully repaid.

Unexpectedly, Sudhir's father passes away one night. Sudhir realises that he does not have the budget to repay his father's home loan. And with his father's income now no longer available, the home loan remains unpaid. The bank comes knocking a few weeks later, and since the family is unable to repay the loan, Sudhir and the rest of the members are forced to move out. The bank repossesses the house, and the family moves into a low-budget rental home.

A few weeks later, as Sudhir's mother is sorting out his late father's papers, she comes across a life insurance policy. The family contacts the life insurance provider and discovers that Sudhir's father had a life cover amounting to Rs. 50 lakhs. They raise a claim and eventually get the payout, and things work out well in the end.

But had Sudhir's father informed his family about his insurance beforehand, they would not have had to let go of their family home.

Sudhir's story is also the story of several families in India. Many breadwinners and earning members fail to inform their dependents about their investment plans. They do not pass on crucial information about their insurance and investing options.

The data we have proves this fact. As of December 2020, unclaimed deposits with various Indian banks amounted to around Rs. 1,50,000 crore[1]. And the amount of unclaimed life insurance grew by 1.5 times from 2018 to 2020[2]. This situation has not changed much in the two years since.

Reasons your family should know about your insurance and investments

If you have any life insurance policy in your name, or if you have been investing your money in any asset or scheme, it is important to let your family know about these plans. Want to know more about why this is important?

Let's take a deep dive into this and find out the reasons your family absolutely should know about your insurance and investment plan.

  • It ensures that your legal heirs can claim their inheritance

    The main reason you buy a life insurance plan is to ensure that in case something untoward happens to you, your dependents are not financially inconvenienced. So, only if you let them know about the insurance and investment plans you have in place can they raise a claim on the same in a prompt and timely manner.

    Otherwise, if they are unaware of the inheritance you have built up over the years, your loved ones may spend many precious years under undue financial stress. For instance, if they do not know that you have a life cover, your spouse and/or your children may be forced to take on multiple jobs in order to meet the needs of the family — all without knowing that you have left behind a safety net for them in the form of an inheritance.

  • It helps with better decision making during crisis

    The importance of insurance and investments is not limited only to the phase of life after an earning member's demise. They are also highly relevant during any family crisis. For example, say you are the primary breadwinner in your family, and you are unexpectedly hospitalised. You have a health insurance plan in place, but your family is unaware of this.

    Now, in this case, since your loved ones do not know anything about your insurance cover or where you have invested your money, they may be forced to borrow funds to pay for your medical treatment. However, if they are aware of your financial portfolio, they will be able to make smarter decisions during a crisis like this.

  • It facilitates better long term planning

    If you are the earning member in your family, you may be doing the investing and buying a life insurance plan for yourself. However, your earnings will eventually have to be used to achieve the shared goals of your family members. For instance, your spouse may have the goal of building a dream house for your family. And your children may want to pursue specific educational courses.

    Without discussing your investment plan and insurance coverage with your family, you will not be able to plan for the long term in an efficient manner. On the other hand, by simply having an exchange of ideas, your family can understand how much you have invested and how much insurance you have, and you can understand how much more you need to invest for your family's shared life goals.

  • Your family can make sound financial decisions

    If both you and your spouse are working, you may naturally engage in some shared financial planning. But even if your spouse is a homemaker, it is important to inform them about the insurance coverage you have and the investments you have made so far. And if your children have grown old enough to understand personal finance, you can also talk to them about it.

    This will facilitate a better understanding of your family's financial situation among your spouse and your kids. And eventually, this will lead to better money management and help your family members make better financial decisions. Without knowing how much or how little you have saved, it becomes harder for them to plan for their life goals.

What are the key things you should discuss with your family?

Now that you know why you should make your family aware of your insurance and investments, let us take a closer look at the what. Here is a list of specific things that your family should be aware of.

  • Your bank accounts
    Maintain a list of all your bank accounts and let your family know these details. Ensure that you nominate your spouse or child to your account.
  • Your deposits
    If you have any fixed or recurring deposits, let your loved ones know the amount and the tenure of the deposits.
  • Your investments
    Make sure you tell your spouse about all your investment accounts and the securities in your portfolio. This includes stocks, bonds, mutual funds and more.
  • Your insurance policies
    Whether you have a life insurance plan, a health insurance plan, or any other cover, your family should be aware of it. This way, they can raise a claim in a timely manner, without any delay, when the need arises.
  • Your tangible assets
    If you have any tangible assets in your name like a plot of land, a house or gold, your family should be aware of these too.
  • Your credit and debit cards
    Let your family know about the credit cards and debit cards in your name. This includes the card number, PIN and other such necessary details. So, in case your card is stolen or lost, your family can ensure that the card is blocked right away, even if you are unable to do so.

Conclusion

Informing your loved ones about your financial plan has many advantages — and practically no downside. So, make sure you tell your children or your dependent parents about the insurance and investment plan you have in place. Also, keep your paperwork in order and inform your dependents about where you have kept the essential documents needed to make the necessary claims, in case something happens to you.

Another thing you can do to make the lives of your loved ones easier is to have a will in place. This will save them the trouble of obtaining succession certificates for specific investments. These may seem like little things, but they go a long way towards helping your family lead a smooth and financially secure life, come what may.

[1] https://www.thehindu.com/data/data-unclaimed-wealth-with-indian-banks-rose-to-a-three-year-high-in-2020/article61433183.ece
[2] https://www.thehindu.com/data/data-unclaimed-wealth-with-indian-banks-rose-to-a-three-year-high-in-2020/article61433183.ece
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