Updated on 22 July 2020.
Acclaimed author Alan Lakein once said, “Failure to plan is planning to fail”. This quote has been used by plenty of other influential personalities and figures for one simple reason – it’s true!
That is why one of the best ways to protect yourself and the ones you love is by planning and preparing for tragic circumstances.
One of the most important things you should cover in this case is making sure your family is protected, especially from a financial perspective. Here are three ways you can do that:
1. Buy insurance
You need insurance. Whether it is life and disability insurance, homeowner’s insurance, auto insurance, or any other kind, you will need it.
What would happen to your finances and your family if you were suddenly disabled and unable to work? Insurance is a must-have that should be in the “can’t do without” category of your budget.
Islamic finance offers a unique type of insurance called Takaful. It is a concept whereby a group of participants mutually guarantee each other against loss or damage. In the event of loss or damage suffered, the Takaful operator will disburse the funds accordingly to its participants.
Any surplus is paid out only after the obligation of assisting the participants has been fulfilled. Through this principle, Takaful operates as a protection and profit-sharing venture between the Takaful operator and the participants.
2. Make sure you have a sufficient emergency fund
This is exactly why you need to have an allocation for an emergency fund included in your monthly budget. In the past, experts suggested having three to six months of salary stashed away as sufficient, but depending on your circumstances, that might no longer be enough.
Proper planning on your budget is needed so in the case of disaster, you will at least have a safety net for you and your family.
3. Have a will sorted out
It is hard to find a more catastrophic event than your own death! A funeral or the passing away of anyone is indeed an upsetting and challenging time. Death is inevitable for everyone, and because of that, we need to prepare for it – the sooner the better.
Without a will, the distribution of inheritance could take about two to five years or even more depending on the complexity of the case. Furthermore, the value of your estates can be significantly affected if there is a financial recession. The value of time-sensitive assets like stock holdings might also depreciate by the time legal ownership is transferred to your loved ones.
However, many Malaysians overlook the importance of having a will. According to news reports in 2016, the value of unclaimed inheritance was estimated to be RM60 billion! Such inheritance, in the form of assets or money, was still waiting to be claimed by the rightful heirs.
For Muslims, the process of wealth distribution is the same as when you have a legal Wasiat (equivalent to will). Priority will be given to the provisions of your funeral expenses followed by the payment of outstanding debts including zakat, uncompleted hajj, and Nazar (solemn pledge).
After these payments have been made, the remainder of your estates is distributed among your beneficiaries according to the Faraid (Islamic inheritance law).
For non-Muslims, an Administrator must be appointed by family members. The process of wealth distribution is the same as when you have a valid will. Priority will be given to the provision of your funeral expenses.
After that, the provision shall be made to the creditors/outstanding debts. The balance of your estates will go to the beneficiaries based on existing laws.