Dealing with the aftermath of COVID 2.0 has been unsettling and depressing. The family that has lost a loved one suddenly needs to deal with a lot of chaos and confusion, not even allowing it to grieve in peace. In most households, one spouse takes the lead in handling finances and related matters. The other spouse naturally gets complacent that these matters are being taken care of and hence doesn’t even attempt to get a broad picture of the state of assets, liabilities etc. While this experience has given a lot of action points and mistakes people should avoid, we will concentrate on liability, especially the home loan for the sake of clarity.
Liabilities after death of lone breadwinner
We were recently referred by a client to the family of a person who had just succumbed to COVID-19. He was the sole earner in the family and his wife had very little interest in the finances and was happy letting him handle everything. She had no idea of insurance, loans, bank balances or investments. They had two children under the age of 12 and the shock of losing a spouse who was healthy, within a week, was immense. Unfortunately, she had to deal with a lot this stuff at the worst possible time. While we were able to build a picture of the assets and liabilities from mails, bank accounts and data files, the home loan was a different matter altogether.
They had purchased a house some years back with a home loan and diligently paid more than the required EMI in the hope of closing the loan earlier than its tenure. Now, the house was bought six years back and, after his demise, none of the documents related to the home loan were found at his house. She had to rely on the bank to tell her if the loan was adequately covered. The bank statement showed that every month, a few days after the home loan EMI another smaller EMI was deducted from the bank account. On enquiring, she was told that this was towards the insurance. That was a huge relief. Once the paperwork was sorted, she informed the home loan company of the demise of the husband and asked them not to deduct the EMI but adjust it against the insurance. The insurance company reverted, saying that the loan had been taken only for a five-year tenure, and hence the balance was payable. This came as a rude shock and she had to now decide whether her assets has to be liquidated to pay the loan or would she have to sell the house and move to a smaller apartment or to a distant suburb.
In another case, I am told that the wife who had a higher salary had bought the house (and taken the home loan) in the name of her husband as a good will gesture. She had taken insurance for her home loan, again in her husband’s name. When she passed away, the loan remained in his name and no insurance was payable since he was alive. His salary is not adequate to pay the EMI and take care of the expenses.
Dealing with home loans
So, what are the few things that you can do to ensure that you family is not left in the lurch?
-Irrespective of the interest of the spouse, inform him or her of your insurance policies, assets and liabilities, and have a specified place where you keep your important documents.
-The loan sanction letter is an important document, as it gives you a lot of details. No matter when you took your loan, read your loan sanction letter once again.
-Confirm with the insurance company that the the insurance taken with the loan is valid for the entire amount and for the complete tenure.
-If your insurance is not valid anymore, take an independent term life insurance to cover all your liabilities, to ensure that the family is looked after.
-When you take a new loan, do not allow emotion to come in the way. Let the person who has the capability to pay the EMI have the loan in his/her name.
-If there is still a situation where the primary borrower is your spouse, but can’t pay the EMI in your absence, ensure that you take an insurance policy to cover the loan and let your spouse know the details.
All of us work hard to ensure that we can give a good life to our families. No one would like their family to get one rude shock after the other during the worst time of their lives. Taking time out to go through insurance policies and liabilities, and ensuring that the family is aware of it will go a long way should the unfortunate event happen.