Posted 23 February 2025, by Sam Ng

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“I made a mistake. People knew I had so much money and they all came to me. I am so stupid. I never buy house and finished all the money meant for my children.”

These words of regrets came after Pusparani received SGD 900,000 in compensation (SGD 100,000 from insurance payouts and SGD 800,000 from public donation) for her husband’s accidental death, and subsequently spent it all within a year’s time. Pusparani’s case is among the more notable ones reported in the media.

I believe in real life there are more incidents like this, but it is uncommon for such incidents to be widely reported due to privacy concerns – especially when it comes to life insurance payouts.

Windfall Wealth

Death claim payout can, in a way, be like lottery winning. But a death claim event is not one to celebrate. It just generates windfall wealth for a family, much like a lottery win.

The person receiving the insurance payout might spend it without realizing how much they spend in a month, thus fail to understand how long the money would last if they took an income of RM20,000 per month from a RM1 million insurance payout.

Even if it were well invested, taking an income of RM240,000 a year would still deplete the RM1 million capital quite quickly.

What Leads to This Blind Spot?

Failing to seek professional advice may lead to this blind spot.

More importantly, a person’s financial context is the dominant factor in how money is spent. Financial planner Dave Fisher explains this well in his book “Destination Wealth”.

"Our financial context comprises the attitudes and beliefs we hold about money, which are shaped by factors such as our upbringing, parents, peers and their beliefs about money."

In Pusparani’s case, half of the compensation received went to a business venture with her brother, a transport firm that eventually drained every cent of the funds invested, leaving nothing behind.

For good or for bad, her brother has undoubtedly influenced her to take unnecessarily high risk with the money meant to support her children’s living expenses.

What about Your Life Insurance?

Now, bringing it back to a personal level – do you have confidence that if the day came, your loved ones would use the life insurance payout as you had intended?

Could a spendthrift family member squander these lifesaving funds?

Could some relatives try to take advantage upon learning about the insurance payout?

Or does your beneficiary have the knowledge to manage the funds wisely?

The Solutions

To address these concerns, you can adopt either a soft or a strict approach.

You may discuss the intentions of your insurance policy with your beneficiaries. This is a soft approach that does not guarantee a success.

The strict approach is by setting up an insurance trust. Instead of making a lump sum payment to your beneficiaries, the trust distributes a fixed amount to them over a set period according to your instructions, helping to preserve the principal from being spent too quickly.

In Conclusion

Life insurance is a powerful way to provide financial security for your loved ones in times of need.

However, without proper guidance, even the best intentions can go astray.

Simply leaving behind a lump sum does not guarantee their future stability. True financial security comes from thoughtful planning.

Thank you for reading!