Fine Prints and Better Records
By Malaya Laraya
In my line of work, a common error I see is the belief that one’s involvement with a product ends upon purchase. Maybe it’s faith or optimism but a lot of people act and believe that once they’ve bought a product they no longer have to think about it. They wrongly assume that everything will go well and that someone will just contact them if and when something goes wrong. Unfortunately, neither of those conditions are anywhere near the truth and nowhere is this more evident than in the way many people treat their equity and insurance purchases.
As a case in point, consider that one of the main reasons people buy stocks is to receive cash dividends. And yet, year after year, millions of pesos worth of dividend checks get returned to the transfer offices and are never cashed. Why? Mainly for a couple of reasons.
First, when stockholders move residences, they quite often forget to formally inform the transfer office of their new address. Consequently, company notices and dividend checks keep getting sent to the old address. This happens quite often in spite of the fact that when an individual purchases a stock, the fine print of the documents that accompany said purchase does state that the buyer will inform either the broker or the transfer agent of a change in mailing address. That provision is placed there specifically so that people will still receive their money even if they move houses. Sadly though, since a lot of people don’t bother reading the fine print, they end up losing significant amounts of money over time.
Second, when a stockholder passes away, his heirs are legally required to inform both the broker and the transfer office of the event so that the process of transferring the assets can begin. This process is very important as it is only through this manner that future dividend checks will be issued to the rightful heirs. However, the documents required to complete this transfer are quite substantial so good record-keeping is essential.
For one thing, the heirs must now exactly what shares the deceased owned and where said shares were kept. Lack of either information will make it quite difficult and potentially very expensive to transfer the shares from the deceased to the heirs.
To give a concrete example, let’s say the Mr. Juan Cruz owns 10,000 shares of PLDT Preferred Shares series Q or TELQ. Said shares normally give a cash dividend of P1 peso per year so Mr. Cruz would annually receive a check for P10,000 (less taxes) from PLDT. These checks would regularly be sent to the mailing address Mr. Cruz had when he purchased the shares. Now, if over the years, Mr. Cruz had changed, mailing addresses, he should have informed PLDT’s transfer office of his new address every time. Failing to do so would mean that the checks would be sent to an old address and Mr. Cruz would not receive his money.
When Mr. Cruz passes away, his heirs will ideally need to know what shares he has, how many shares he has and where those shares are kept. Lacking any of that information significantly complicates the process as they are all required to efficiently effect the transfer. For one thing, not knowing what and how many shares Mr. Cruz had would mean that his heirs may not even know which transfer office to go to. For another, not knowing where the shares were kept could mean that Mr. Cruz kept his shares with a broker and his heirs would not know which broker it was. All of these issues could easily be avoided if Mr. Cruz kept good records of his stock purchases.
This need for reading the fine print and keeping good records is even more important when it comes life insurance products. Especially since it is quite common for insurance products to be needed after all the principals involved in the initial purchase have moved on or passed away.
To illustrate, I personally know of one case wherein an insurance firm voided a policy on the grounds that the policyholder’s last payment was short by less than P100 (yes, P100) and the policyholder had failed to settle said balance within the 90-day grace period. As distasteful as that sounds, said provision was clearly stated in the fine print so the insurance company’s decision was within the bounds of the policy. Had the policyholder clearly read the policy he signed AND kept good records of his payments then this sad situation could definitely have been avoided. Of course, the fact that the policyholder in said case has already passed away means that his heirs are in for a long fight for the benefits.
So, if you have stocks or insurance policies, make sure your records are complete and up to date. Keep a folder or envelope in a secure but accessible location so that they can quickly be gotten to when needed. For stocks, keep a list of your holdings as well as which brokers or banks hold the certificates. This way, should they need to be liquidated, it is easy to know where they are. For insurance policies, it is critical that a record of payments be maintained or a certificate of full payment be kept. Furthermore, a list of the documents required to file a claim should be regularly updated as well. After all, keep in mind that there is a very real chance that when these records are urgently needed, you may no longer be around to provide them.