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Is a large insurance policy really enough?

One of the key messages in my book is that women need to familiarize themselves with their family’s finances. All of it – debts, investments, the works. Sure, we manage the bulk of the day-to-day stuff, but how conversant are we really with the investments that our spouse, or we, have?

This topic came up at my book launch as I chatted with a group of women about some of the ways that they can protect themselves. Mary* wasn’t convinced. Her husband has a number of complex investments, including real estate, and while she’s super smart and good at math, she nonetheless found the investments too complicated to decipher in past discussions. She’s leaving all of that stuff to him, arguing that she has enough on her plate. She wasn’t moved by my recommendations to dig in and figure it out. “We have a huge amount of life insurance. If something happens to him, I’ll be fine,” she insisted.

That got me thinking. Will she really be fine if something happens to her spouse? Is a massive insurance policy enough? Let’s work through it.

Consider the following scenario: Something tragic happens and Mary is widowed with young children. I have no idea how large her insurance policy is, but let’s assume that it is worth seven figures – say two million dollars, for the sake of argument. Let’s further assume that there are no delays by the insurance provider regarding the payout. Therefore, a few months after her spouse’s death, she gets a cheque for two million dollars.

Now what?

Remember that she is grieving the loss of her husband while at the same time dealing with young children who are also grieving. She has all the household responsibilities, she must now take care of the children alone, and she inherits all of the complicated investments. Her family will certainly help her out with the house and the kids for a while, but, as always happens, help dwindles over time (sometimes more quickly than you’d imagine) and the widow finds herself juggling most aspects of life by herself.

In short, her world has just become very complicated emotionally, physically and financially. This is the backdrop against which Mary must make critical choices:

  1. Who’s going to manage the properties in the short term – tenant calls, rent collection, repairs, and bills. Even if the properties have a property manager, you still need to manage the manager; it’s a lot of work. Who will do that?
  2. Do you hold on to the properties or do you sell them? Can you sell them? Even if your spouse tells you to sell the lot if he dies, there are multiple considerations such as agreements with investors, mortgage restrictions, penalties, fees, market timing, and tax implications. The list of potential issues is long. Is Mary in a position to address these questions? If not, who will do it?
  3. What if a knowledgeable advisor recommends holding on to the properties for a few years because of taxes or mortgage considerations, and then selling? The issue becomes who will manage the properties in the interim. Anything involving real estate is rarely quick or easy, even if the plan is to sell.
  4. Do you pay off debt with the insurance money or invest it? A bit of both? How much do you assign to each?
  5. What debts are worth knocking off immediately and which payments can be deferred for a while? What makes the most sense financially?
  6. If Mary decides to invest the lot, is she well-versed in investing to be able to decide how to do it? What will be tax-efficient? If she’s not well-versed, who will do it for her? Would you hand over $2M to an advisor just like that?
  7. What if her husband had a financial advisor but that person fails to communicate well with Mary when she is a widow, as happens fairly often. Whom does she trust then?
  8. If Mary already has an advisor, is she sure that this is the best person to be able to deal with $2M? Does her advisor have experience with this level of assets? And does her advisor understand real estate – another critical question to consider.

I could go on with even more questions, but you get the point.

Here are a couple of things that I know from experience: First, people do not make great decisions under duress. Second, they really don’t make the best decisions when they are not prepared. A lot of money is potentially wasted and stress is packed on when there is no plan and no familiarity with the situation at hand.

Dealing with the death of a spouse is awful. It’s awful for the widow(er), it’s terrible for the kids, and it leaves everyone exhausted and raw. A large influx of cash will remove the stress associated with not having enough money, but it won’t address the challenge of having to suddenly deal with all financial decisions, particularly if they involve sorting out complex investments at a time when the last thing you need is more strain.

If you’re in a relationship and your partner or spouse handles the investments, I strongly recommend that you implement a wine night once a month to talk about money: your debts, your assets, your investments and what your plan is in case something nasty happens. Even if you don’t understand a blessed word of what your spouse says, stick with it and persist. It will eventually start to make sense if you give it time and attention, and you come to the table with a willingness to learn. If you decide ahead of time that it’s too complicated, you will become a self-fulfilling prophecy.

What I can say for certain is that if you don’t learn now when there is no emotional stress, even a massive insurance policy won’t save you from the difficulties in the event of a catastrophe.

Being fine is about a great deal more than having enough money; it’s about ensuring that you minimize trauma at a time when your children need you most and when you need all your inner resources to cope day-by-day. It’s also about ensuring that you make the wisest possible choices with your money.

Besides, who doesn’t want a wine date at least once a month with their spouse?


*Not her real name.

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