Financial planning for divorcees

When it comes to the D-word, most tend to skirt the issues surrounding it, until it happens.


Yet divorce is a very real concern and more people are making a decision to discontinue marriages1. This results in a splitting up of assets, not to mention an emotional upheaval in terms of household organization. Thus, an earlier financial plan which was tailored for a double income household may no longer be suitable.

It may be a trying thing but financial planning for divorcees means picking up the pieces and refocusing on your options going forward. You should reassess your insurance and investment plans to ensure that you're able to continue contributing to those plans with your single income, and that they're still adequate to meet your goals.

With regards to your insurance plans, you may need to review the listed beneficiaries and change them accordingly, if needed. And if you become the sole breadwinner for your dependants, you can consider an income protection plan in case you lose your job. At the same time, it's important to ensure that you are able to build up a sufficient retirement fund with a single income.

Also, remember to ensure that your healthcare needs are adequately covered including hospitalisation plans, critical illness protection as well as long term care plans in case of major illness, disability or long term illness. 

Liquid savings

This means cashflow (read: money in the bank). Which means money saved on a regular basis and put away in an account that you won't access for spending. Budgeting is a key driver of your success here – as all your regular expenses are borne by you, you'd want to manage them with discipline to avoid overspending.

You should also have a liquid emergency fund set aside, should there be a crisis that requires money or if you suddenly lose your income. 

Life and Health Insurance

Having death cover is important, to ensure that dependants such as children or elderly parents are provided for in the event of untimely death.  If you are the sole breadwinner of the family, adequate death coverage would then help those left behind to deal with their ongoing living expenses, the outstanding mortgage and even education costs for your children.

Additionally, health insurance is also a basic must-have and is best purchased while younger and healthy enough to enjoy full coverage. In Singapore, MediShield provides basic medical coverage for hospitalisation and surgical expenses. You can also purchase Integrated Shield plans from private insurers such as Aviva for higher coverage (e.g. treatment in Class A/B1 wards in restructured hospitals or private hospitals). The premiums for Integrated Shield plans can be paid from Medisave but withdrawal limits apply.

It would be good to note that Shield plans come with deductible and co-insurance. Deductible – or excess – is the initial amount you need to pay before the medical cost is covered by your insurance plan. Co-insurance is the percentage of the bill you need to pay to co-share the bill with the insurer, usually 10%. You’ll need to ensure you have enough liquid savings to take care of the deductible and co-insurance, in the event of a medical emergency. Alternatively, you can weigh the potential out-of-pocket costs against the cash premium and consider purchasing a rider from your insurer that covers the co-insurance and/or deductible. 

Planning for those silver years

While planning to grow old may not be the most appealing thing for you right now, there are many good reasons why you should start now, so that you have time to grow your retirement nest egg. There are various options available in the market to cater to different time horizons and risk profiles. You should sit down with a professional adviser to help you diversify and map out a good mix of accumulation tools to achieve your retirement goal.

As you get closer to your retirement age, you should focus on capital preservation as there's less time to rebound from large losses – plans such as Aviva's MyRetirement or MyIncomePlus that offer guaranteed capital at the selected retirement age and guaranteed returns upon policy maturity may be suitable. 

Protection needs

No one likes to think about accidents but the most immediate and relevant aspect of having protection plan is to focus on living benefits. As the name implies, living benefits refer to payouts while you're alive, to give you financial protection against a variety of scenarios such as hospitalisation, major illnesses, disability, and so on.

Because you're the one and only source of income for yourself and your dependants if any, it's all the more important to protect it. Income protection plans in the market typically allow you to purchase coverage for up to 75% of your current salary. The benefit kicks in when you're not able to work due to illness or disability, to provide an income replacement, so you can continue paying the bills and daily expenses.

If you are 40 and above, you should also consider long-term care plans. Long-term care is often costly and goes on for a prolonged period of time. Yet, protection against the cost of long-term care is often overlooked. ElderShield was launched by the Ministry of Health in 2002 as an affordable severe disability insurance scheme. All Singaporeans and PRs are automatically covered when they turn 40 unless they choose to opt-out. The scheme is designed to provide monthly cash payouts for a limited period to help pay out-of-pocket expenses in the event of severe disability. You can also increase the payout amount and payout duration with ElderShield supplements, such as Aviva's MyCare and MyCare Plus.
 

Footnotes: 

1 Statistics on Marriages and Divorces 2013 report, compiled by the Singapore Department of Statistics ( SingStat )

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