There are many different types of insurance plans out there in the market (e.g. whole life, term, endowment, Investment-Linked (ILP), medical and personal accident) and it can be quite overwhelming when it comes to planning for your child(ren)…
If you are currently in such situation and you are looking for some form of guidance… here’s something that might help you along…
#1 – Start Off With A Whole Life Insurance Plan As A Form Of Legacy Planning
Most people think that Whole Life Insurance is all about covering one against Death, Permanent Disability or one of those critical illnesses which is why there are debates that it’s very unsound to offer this kind of financial planning advice to parents (it’s like cursing someone that something bad will happen to the child).
But from my point of view is that Whole Life Insurance Plan is one way for parents to leave behind a legacy (e.g . a sum of money for the child’s retirement planning or just a sum of money that the child can decide what to do with it when he is of legal age).
Other Benefits include:
- Most Whole Life Insurance Plans come with a Rider to protect the Payor (usually the Parent) of which if anything should happen (death, disability or critical illnesses) to them during the midst of the ongoing premium term… the insurance company has the obligation to pay the remaining premiums for the rest of the term.
- Most Whole Life Insurance Plans come with Limited Premium Term which means your child can stop worrying about continuing to pay the premiums when they are of legal age
- Whole Life Insurance Plans are a safe tool for growing money (average returns around 3 – 4%) and there’s really no much need to monitor the returns unless there’s some drastic changes to the performance.
- There’s the guaranteed returns to look forward to which means parents can really project how much money they get to plan for their children in the future (which differs from those investment-linked plans)
- Premium Rate is considered the lowest and does not really fluctuate much during the childhood time as compared to getting it when your child is 21 or 30 years old.
So How Much Coverage Should A Parent Plan For?
There’s no magic number that I can suggest here but a general suggestion is to plan with any excess budget that you may have – read the rest of the pointers (especially Point #3) and you will understand better. And another good thing is that since premium rate is rather low when they are young, you can always spread out your purchase (means to get additional policies) as the years go by!
Note: if you are really looking for a number to plan with… look for something beyond $50K – $100K.
Should I Consider Those Term Insurance For My Children?
If it’s those Company or Group Insurance that covers your whole Family, then I would say go for it. But if you are just buying it solely as a form of proper financial planning… then I would suggest not to go for it unless there’s really a purpose behind that you need to get it. You should leave this buying decision to your child when he is a working adult or when he has his own family and it’s during these period the coverage from a term insurance plan will make more significance.
#2 – Get Your Child Insured With A Better Private Medical Insurance Plan
I have seen friends admitting their children to the hospital for situations like high fever that don’t seemed to subside (suspecting that it may be dengue fever)
If you share similar concerns… it’s good to plan for them with a better medical (or health) insurance plans (which take care of inpatient hospital bills and not those that pay you a cash benefit for the number of days that you are warded). This is also on top of the Medishield plan provided by the Government and the coverage is for B1 Ward and below.
When I mean better… it means to go with plans that cover the bills for those ‘A’ or Single Ward under Restructured Hospitals or Private Ward under Private Hospital if you can afford it.
- It’s quite a common sight to see that those ‘B’ or ‘C’ Wards are usually packed and having a better private medical insurance plan means that you can get a better chance to be warded and to receive treatment faster if the sickness is really bad
- Annual Premium rate is considered low when your child is still young and it is serviceable with your Medisave Account (and the Government is paying 4% interest)
- Take it as a precautionary move to get your child locked in at a better plan because if there’s a need to upgrade from a lower to a higher end, it will require further underwriting.
- If there’s no need for such better coverage, your child can make his own decision to downgrade the plan in the future
- If you have a cash budget to plan with you may want to get the Rider which covers any Hospitalisation Bills right from the $1 onwards!
#3 – Plan For Your Child’s Education Funding Right From Day One With…
For most parents, the highest cost to bear is the child’s future education funds (e.g. Poly, Private / Local / Overseas University Education) which is usually in the range of 5 Figures Sum… and to add salt to the wound… it’s a common trend to see the fees increase almost every other few years.
And if you are going to plan well for this, the premium that you need to pay is easily a few hundreds a month (usually more than $150) or a single lump sum and there are a few tools to help you to plan:
- Endowment Plans
- Investment-Linked Plans
- Unit Trusts
Which is the best option to choose? Really depends on your budget, your time to monitor, amount of investment knowledge and your personal risk appetite. One thing to note is that with the same amount put aside for each type of plans – the higher the returns, the higher the potential risk!
#4 – Personal Accident Plan Or Those Plans That Cover Children Against Infectious Diseases
These are general insurance plans that pays out a cash benefit to cover any medical expenses (whereby there’s no hospitalization required) if your child meets (*touch wood) with an unforeseen accident (e.g. a fracture) or suffers from one of those common infectious diseases (e.g hand foot mouth or dengue fever).
Hope You Benefit From This Simple Guide
These four pointers should give you a good head start on the types of insurance that you can buy for your children.
In terms of affordability and the amount of money that you need to set aside… it’s best to look for a qualified financial planner who can do a proper financial review on your financial health and give you a good guide on how much you need to set aside and how much you can really afford at this point of time!