
Financial Planning – A word that is both familiar and foreign at the same time. As the old saying goes: Those who fail to plan, plan to fail. And we at Abundant Life wants you to succeed and that’s why we believe financial planning is so important in all life stages.
What is Financial Planning? It is a strategy devised to achieve your goals and dreams by wisely managing your finances while negotiating the financial barriers that may inevitably arise along different stages of life.
Following and sticking to a plan allows you the best possible chance of success in all aspects of your life. Hence, let Abundant Life hold your hand as we walk you through financial planning for various life stages.
Your 1st Paycheck
You should be setting aside 20% of your 1st paycheck for the benefit of insurance and also long term savings*. What are some of the important insurances to consider during this life stage?- Hospitalization insurance – Get a comprehensive policy that covers your hospitalization bill and minimise any out-of-pocket expenses. Don’t forget to check the medical and hospitalization coverages provided by your company insurance. Coverage can be local or international, depending on your needs. This should be covered throughout your life.
- Disability income insurance – Disability income should cover at least 80% of your salary** and it is good to get this coverage early because the younger you are, the lower the premium will be and this usually remains the same throughout the policy.
- Term/Whole Life insurance – Both insurance will pay out in the event of death, total and permanent disability and for some Terminal illness. The cash value is arguably the biggest difference between whole life and term insurance. Term insurance has NO cash value, meaning if nothing happens to you during the policy term, you do not get any financial benefit. Term insurance is meant for temporary coverage for a certain span of time. The policy might provides a convertible feature i.e. you can change the policy to any permanent policy plan regardless of your health condition.
- Early Critical Illness insurance – It is recommended to find a plan that offers you a pay out about 1 - 2 times the amount of your annual income to afford early treatment options for a smooth recovery. Early stage Critical Illnesses generally take lesser time to treat, cost lesser, and have a higher survivability rate.***This policy will pay you a lump sum upon diagnosis even if the named critical illness is only at the initial stage.
- Critical Illness insurance – Ideally, your critical illness pay out should enable you to maintain your lifestyle for at least 5 years if you are unable to work.***While being young and in good health certainly reduces your risk of critical illness, it does not eliminate it at all. There may seem to be no urgent need for it right now, but getting coverage as early as possible do bring several advantages such as lower premiums and lower chances of being rejected by the insurer. With adequate medical cover being taken care of, you can focus on other life goals with a peace of mind.
- Personal Accident insurance – Besides covering death, total and permanent disability and dismemberment resulting from an accident, some policies also reimburses outpatient bills incurred at the General Practitioner or Specialist. Some policies also cover TCM (Traditional Chinese Medicine) and chiropractic bills. Usually food poisoning and dengue cover will be included. Others offer optional extension to cover hospital income and loss of income due to temporary disability.
- Investment/Savings – Leverage on the power of compounding to gain the best value for your buck. With the long runway that you have for your upcoming major milestones, you will be able to get better investment returns. Should you go for unit-linked or endowment policies? This will depend on your risk appetite or whether you wanted guaranteed returns.
1st Milestone – Congratulations! You are Getting Married
- Term/Whole life insurance – At this milestone, you probably have some form of coverage. It is a good time to take stock and review if you need any changes to this portfolio. The amount of life insurance required would differ now as you would need to take care of your dependents as well.
- Mortgage Reducing Term Assurance – covers the outstanding balance of your new home loan should death or total and permanent disability strike the family.
- Investment/Savings – You may want to continue investing and saving for other upcoming long term milestones.
2nd Milestone – Congratulations! You are Expecting a New Family Member
When we welcome a new baby in our lives, our joy increases but so do our responsibilities.- Term/Whole life insurance – You will need to increase the amount with additional financial obligations that comes with a baby.
- Maternity insurance -This is necessary to provide for both the expecting mum and baby on the way. The policy is bought on the mother and can be transferred to the baby after birth. If the transfer is done within the first 2 months, medical underwriting may not be required.
- Child’s Hospitalization insurance – Having your baby fall sick or hospitalized is a tough situation on its own. No one wants to worry about cost when their baby is ill. Buying hospitalisation insurance for your baby helps you prepare you for any unforeseen circumstances so that you can better focus on your child’s full recovery.
- Child’s Personal Accident Insurance – Coverage is similar to an adult’s personal accident except for the loss of income due to temporary disability. Policy will also cover HFMD (Hand foot mouth disease). Optional benefit can be extended to cover child’s critical illnesses. Payor benefit is usually included. This rider waives all future premium payable once the parent dies before the child turns 21 years old.
- Juvenile insurance – Most parents usually will buy a whole life policy for their children to give them an early head-start in life as the premium can be as low as half of that for an adult. If limited premium payment policy is selected, the policy will be paid up before the child enters the workforce. This will also help to secure some coverage for the child lest he /she develops some medical condition that might result in extra premium or exclusions. Unit-linked or endowment policies are usually bought as a form of savings for the child’s tertiary education. Compared to saving on their own, the biggest advantage of saving through a policy is that once the policy is incepted, the amount required at the end of the period is secured regardless of the paying parent ‘s existence because the payor benefit rider will waive all future premiums upon death or disability of the payor. Some riders also extend to cover early critical illness.
3rd Milestone – Congratulations! Retirement is in Sight
- Term/Whole life insurance – At this stage of your life, your children would have grown up, home loan almost or fully paid up hence your financial liabilities will reduce substantially. You may want to consider reducing your coverage.
- Annuities – These pay a fixed monthly income for a certain number of years from a pre-selected age. Annuities are an excellent supplement to CPF Life. The total monthly payout from both should be about 70% of your last drawn income.
4th Milestone – Congratulations! You want to leave a Legacy to your family
- Legacy planning insurance - At this life stage, you will be thinking of living well & the importance to protect your loved ones when you are no longer around. Hence, it makes sense to plan ahead to ensure that the wealth we leave behind is well distributed and our beneficiaries can make the most of it. You can also leave a legacy for your family or preferred institution and still be provided for retirement.
- 3G Insurance – Such policy cover a span of 3 generations. It is a policy with your child’s name as the insured and yourself as the policy owner. Usually such policies will have a regular payout feature where you, the policyowner will receive. Upon your demise, your child will continue to receive the payouts. When you pass on, your grandchildren will receive the sum insured.