Friday, November 17, 2006

CPF as a form of life insurance

Mr Wang had a blog post "More on Life and Money" and I like to share my thoughts on what happens to your CPF money when you die.

What a lot of people need to realise, is that the CPF itself is a very simple form of insurance. I speak as a person who has collected CPF money from a deceased person before. If the nomination is done right, the CPF board will contact you within a week for your bank account number, and the money plus Singtel shares and so on, will be transferred with minimal fuss, even if you are a minor (ie under 21). If one dies without a nomination, then the process gets complicated because the allocation of the money will get stuck with the other assets subject to estate tax assessment. Think about it: If your OA+SA+Medisave adds up to 100k, do you still want to pay 100 bucks a month for a whole life insurance coverage of roughly say, 50k?

The process for transferring other assets like money in bank account is not so straightforward, because they are subject estate tax assessment. When the bank is informed of the demise of the bank account holder, they will freeze the bank account. No further transaction is possible until an executor or administrator of the estate of the deceased is appointed, a legal process that will take some time. Having a will helps if there are potential dispute over who should get what proportion, but otherwise will not speed up the process if one dies without a will (intestate).

Dont opt out of the Dependency Protection Scheme. It is the cheapest term life insurance one can buy. Now that the DPS is privatised, make sure you get the nomination done as well; it is now separate from the nomination for the CPF accounts.

Lastly, be careful not to plunge your loved ones into a cashflow crisis, especially if you have zilch in your CPF accounts. Where possible, open a joint bank account which can be withdrawn by any party. When one party of the bank account dies, the money automatically goes to the other party.


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