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Top 3 Financial Products You Need To know

top 3 financial products you should know

There are so many financial products in the market that people are spoilt for choice, much like when they are selecting a new phone. No matter how varied the financial products are, they will never veer too much from the basic categories which I will be touching on.

I have always mentioned to my friends and clients, financial products should be the secondary focus in financial planning as they are merely tools to help you achieve your financial goals. The primary focus should be on how a financial planner can help you uncover your financial goals, and provide you with ideas or advice on how you should structure your finances to achieve your goals.

Once you know what you need to achieve, it is a matter of selecting one or a few tools amongst the myriad of financial products to reach your goal. Here are three basic categories of financial products.

1. INSURANCE

Life Insurance

Benefits:

  • Provides Death coverage for whole of life (typically up to 100 years old) and Total Permanent Disability coverage till 65 years old.
  • Premiums are paid till age 85 or more.
  • There will be bonuses and cash value 3 years after the start date of the plan.
  • Paid in one lump sum to beneficiaries.

Variants of this plan:

  • One can now opt for a shorter premium term, i.e. 10, 15, 20 or 25 years while coverage remains whole of life.
  • Life Insurance plans with multiplier effect. Depending on which company and the age when a person buys this plan, there is a multiplier effect added to his chosen coverage. E.g. If person A takes up S$100,000 coverage before age 65, he gets to enjoy a multiplier effect of up to 3x, i.e. S$300,000 when claims occur.

Why people like this:

  • Bonuses added to the life insurance coverage will help to soften the impact of inflation in the long term.
  • People who prefer some form of returns on the premiums they pay.

Term Insurance

Benefits:

  • Provides Death and Total Permanent Disability coverage for a fixed period of time. Total Permanent Disability coverage typically stops before age 6-
  • Premiums are paid for the entire duration of the plan.
  • There are no bonuses or cash values for term insurance.
  • Paid in one lump sum to beneficiaries.

Variants of this plan:

  • Group Term Insurance is a term insurance that is bought among a group of people. Usually has a lower premium than an individual term insurance. The drawback of this plan is it typically stops before age 70, when a person may need the coverage the most. CPF’s Dependent Protection Scheme (DPS) is a good example of a group term insurance plan.
  • Mortgage Reducing Insurance is a term insurance that reduces in coverage through the duration of your plan, according to your reducing housing loan. CPF’s Housing Protection Scheme (HPS) is a good example.

Why people like this:

  • Cheap affordable coverage, especially for people who need a high coverage but may not have the budget or would prefer to deploy their cash flow to other uses.

Critical Illness

Benefits:

  • Provides Critical Illness coverage at early stages or end stages of critical illnesses or at both stages.
  • This can be purchased as a standalone plan or as a rider to a life insurance or term insurance plan.
  • For End Stage Critical illness plans, person can choose to cover for a period of time or for whole of life.
  • For Early Stage Critical Illness plans, person can choose the period of time as well, but typically the plan will end before 85 years old.
  • Premiums are paid for the duration of the plan.
  • There are no bonuses or cash values for Critical Illness plans.
  • Paid in one lump sum to the insured person.

Variants of this plan:

  • Some Critical Illness plans can actually cover up to 3 Critical Illnesses claims.

Why people like this:

  • Important coverage for people to help them with living expenses if they choose to recuperate at home when they contract critical illnesses, instead of rushing back to work.
  • Coverage is helpful for people who may want to seek alternative treatments overseas.
  • Coverage is also helpful for a patient’s family who may want to do home renovations for the patient to be taken care at home. E.g. change of floor tiles to anti-slip flooring, hand railings in the toilet for mobility.
  • If this plan is added as a rider to a life insurance plan, the bonuses and cash value from the life insurance plan can soften the impact of inflation over the long term.

Health Insurance

  • Provides reimbursement coverage for Hospitalisation, Surgeries (Medically Necessary) and certain outpatient treatments (e.g. Cancer Treatments and Kidney Dialysis).

You may refer to my article on Health Insurance in the 2013 April/May edition of the New Age Parents for more details.

Personal Accident

  • Provides reimbursement coverage for expenses incurred due to accidents.
  • Provides lump sum coverage for Death and Disability caused by accidents.

You may refer to my article on Personal Accident planning in the The New Age Parents Oct / Nov 2013 for more details.

2. ENDOWMENTS (A.K.A. SAVINGS PLANS)

man with piggy bank

Benefits:

  • Typically used as a long term savings instrument for a fixed period of 10 – 40 years.
  • Lump Sum Maturity upon the stated duration.
  • There will be bonuses and cash value 3 years after the start date of the plan. Bonuses are typically higher than Life Insurance plans.
  • Provides nominal coverage for Death and Total Permanent Disability throughout the plan duration. Coverage is typically lower than Life Insurance plans.

Variants of this plan:

  • Some endowments have a yearly cashback feature that enables you to withdraw some of your future lump sum maturity earlier before the maturity date. These are known as Anticipated Endowment plans. Returns for these plans are typically lower compared to normal endowment plans.
  • People can now opt for a shorter premium term, e.g. 5, 10, 12, 15 years, similar to the newer variant of Life Insurance plans. E.g. If your lump sum is maturing in 25 years, you may choose to pay premiums for only 15 years.

Why people like this:

  • With the low interest rate environment in banks, endowment plans provide a better return over the long term for a person’s spare funds idling in the bank.
  • People typically use this for their children’s university education fund and part of their retirement fund planning.

3. INVESTMENT-LINKED PLANS (ILPS)

Whole Life Investment-Linked Plans

Benefits:

  • In essence, this is a term insurance plan, with an added feature of investment returns for whole of life.

Whole Life Investment-Linked Plans

Benefits:

  • In essence, this is a term insurance plan, with an added feature of investment returns for whole of life.
  • One can also say this plan is similar to a Life Insurance plan. Instead of getting bonuses in Life Insurance plans, this plan’s cash value is based on the market value of the investment-linked funds a person had chosen.
  • Provides coverage for Death and Total Permanent Disability for whole of life.
  • Flexibility to vary coverage amount throughout the whole of life.
  • Premiums a person pays are diverted to pay for coverage and the remaining premiums are used to invest in funds of his choice.

Why people like this:

  • Flexibility to vary coverage amount anytime.
  • If more coverage is required by a person, he need not buy a separate plan, he can just top up the coverage (and any increase in premium) with the same plan.
  • Flexibility to withdraw (partially or wholly) the investment value anytime.
  • Premium holiday feature of stopping premiums for a certain period of time and resuming premiums at a later date.

Pure Investment-Linked Plans (ILP’s)

Benefits:

  • These plans have nominal coverage for Death, typically 105% to 125% of their invested amount.
  • Premiums that a person pays are used to invest in investment-linked funds of his choice.
  • Typically used as an investment tool for a person’s retirement fund planning.
  • May also be used as a tool for children’s tertiary education fund planning. My professional advice, however, is not to do so. For more details on why, you may refer to my article on Children’s Education Planning in the August/September edition of the New Age Parents.
  • A person may choose between these options of investing: investing lump sum once, investing monthly and topping up your investments via lump sums anytime.

Why people like this:

  • The ability to participate in the stock market at a lower cost. Shares of established companies like Apple, IBM, Samsung, DBS Bank are expensive and may require high capital outflow from a person. Through ILP’s and its corresponding investment-linked funds, they can have the opportunity to own the shares of these companies and participate in these companies’ growth.
  • Provides a minimum death coverage amount. When the investment value is below a person’s initial investment and death occurs, the beneficiaries will get the death coverage instead of the current investment value.
  • Flexibility to withdraw the investments (partially or wholly) anytime.
  • Flexibility to increase your investments anytime.
  • These plans typically do not have a fixed time frame. One can remain invested for as long as they would like.

The above list is by no means exhaustive but it covers the main financial plans that are being offered by financial institutions in Singapore.

Have a question? You can email Winston at tanooisim_winston@hotmail.com.

By Tan Ooi Sim Winston

Writer’s Note: I would like to reiterate that the above are general information with the aim of equipping my readers with enough knowledge to help them understand what they have or what they may be purchasing. For the exact details of a financial plan, it would be best to ask a financial planner as there are so many variants of the above-mentioned plans and it is impossible to cover everything in this article, lest all my readers use this article as a before sleep reading material.

This article was first published in The New Age Parents Apr / May 2014 e-magazine

Is The Baby Bonus Really What Parents Need?

baby bonus scheme in singaporeThe Baby Bonus Scheme, which was introduced on 1 April 2001, aims to support parents decision to have more babies by alleviating the financial costs of raising children. The scheme comprises two components – a cash gift and a Child Development Account (CDA).

As part of the Marriage and Parenthood Package 2013, the total cash gift for children born on or after 26 August 2012 has been increased and the payment schedule shortened.

Couples are given a cash gift of up to $6,000 each for their 1st and 2nd. This gift is paid out in 3 installments over 12 months from the child’s birth date, with the aim of helping parents defray early child rearing expenses.

The CDA is a special savings account that parents can open at any OCBC Bank or Standard Chartered Bank branch if their child meets the eligibility criteria. Over the child’s first 12 years, parents can pump in some savings to this account; these savings will be matched dollar-for-dollar up to the cap of $6,000 each for the first and second child, $12,000 each for the third and fourth child and $18,000 each for the fifth and subsequent child. The savings in the CDA may be used to pay certain expenses for children at a list of Ministry of Social and Family Development (MSF) approved institutions. The money can also be taken out to pay for MediShield or Medisave-approved private integrated plans for these children.

On paper, it looks very good indeed.

But in real life, some are not so enthusiastic about this government incentive to have more children, and express skepticism about its actual benefit to parents, citing various limitations outlined below.

  • The scheme assumes responsible, financial savvy parents

The cash gift of $6000 may go a long way or last mere months, depending on the choices made by the child’s parents. Some may leave it in the bank for a rainy day. Others may draw out the money early on to get big ticket items for baby. There are those who may not even spend the money on the child per se, but on other family needs. And, some may, wisely or foolishly, choose to park the money in trust funds, investments or insurance policies. When in doubt, always speak to a professional and trusted financial advisor.

  • CDA only covers a small percentage of a child’s total educational expenses

Typically, half a day of childcare (7am to 1pm) costs around $400 – $1,200 a month while full-day childcare (7am to 5:30pm) can set you back you about SGD 500-1,500. Even if your child stays home till kindergarten, most kindergartens will charge you $120 – $400 a month, which works out to about $1440 – $4800 in the first year alone! Suddenly, that $6-12K in the bank doesn’t seem so huge after all…

  • child development accountCDA assumes that parents have sufficient capital to save in the first place

In order for the government to put money into your CDA, you need to have money in there first. However, not all families may be able to park a few thousand dollars into the account. Especially if you have elderly parents to support, housing loans to pay, and a lack of pre-existent savings to dip into.

  • Money may not be what most parents need

Indeed, many of us do not choose to be parents if we don’t feel ready for it, especially financially. Of course, we’d all appreciate the extra cash, but what we’d really like is a little understanding and care, more time with our families, less late nights, and a lot more emotional support as new parents. Would you agree?

Nonetheless, while the Baby Bonus Scheme may indeed have its blind spots or shortfalls, there’s no denying that it has eased the financial strain of having bigger families.

As to whether or not the incentives are sufficient or appropriate for motivating couples to have more children – well, that remains a whole other topic to be explored.

By Dorothea Chow

What are your thoughts on this? Share them with us!

Related reads:
http://thenewageparents.com/challenges-for-families-with-young-children/
http://thenewageparents.com/singapore-budget-2013-how-will-it-affect-parents-with-young-children/
http://thenewageparents.com/singapore-budget-2013-how-will-it-affect-single-parents/

Financial Advice For Parents With A Child With Down Syndrome

Financial Advice For Parents - photo by Charles Thompson

Question: My daughter is been diagnosed with Down’s Syndrome. What can I do to ensure that I have enough financial resources to provide for her after my spouse and I have passed on?

MSN (Mom with Special Needs)

Answer: I can understand the need for you to plan for your daughter. Many parents will be focusing on building up wealth to provide for their child with special needs, should their children outlive them.

There are 2 options that you can consider:

1st option (investment strategy)

This is the most common method.

For investment portfolio strategy, parents can choose to invest in a various mix of asset classes. From real estate, shares to unit trust. However, we cannot be making the right investment decision all the time. The timing of when parents choose to withdraw their investment, also determine the amount left for their child because of market condition.

2nd Option (Insurance proceed strategy)

This strategy is considered simpler. Parent’s can simply insure their own lives, so that when they passed on. The amount from their insurance proceed will be given to their beneficiaries. The only drawback, is the commitment to the insurance premium.

Creating a Trust

Consider using a Trust company to manage your funds, after you had passed on. A Trust company is a corporation who administers financial assets on behalf of another.

There are private companies who provide such services and our government also help set up a Trust company, specially just for parents who has the intend to provide financial assistance to their children. For more info: www.specialneedstrust.org.sg

When creating a Trust, parent’s should be mindful of the various cost of setting up a Trust. The higher the cost, the faster your funds will be depleted. If you do not need a very complicated Trust. You can use your existing or any future insurance policies to set up a simple Insurance Trust. It is of no cost; however, you will need to find a Trustee who, you believe can fulfill your wishes, unlike a Trust company who manages your funds as part of the company’s services.

For creation of Insurance Trust, go to Life Insurance Association Singapore (LIA) for more info: www.lia.org.sg

Which Strategy Should I Choose?

You should consider both as an option. Have a balance view. You may wish to mix both strategy together, taking advantage of the market condition (Strategy 1) and the advantage of creating a tax free and worry free estate (Strategy 2) for your love ones.

Financial Options

Answered by Guru Foo

Guru Foo, has a BSc in Accounting & Finance. Was a Priority Banker in a leading off-shore bank. He now educates the public about personal finance. He is completing his Certified Financial Planner (CFPTM) soon. Read more on his blog: YourMoneyGuru.livejournal.com or email kevin_foo@hotmail.com

Do read on more of our expert’s advice in our Ask our expert section.


NTUC Income insurance policy for children and youth with Down Syndrome

NTUC income insurance for children and youth with down syndrome

The only such policy in the market, according to the insurer, NTUC Income has introduced a new insurance policy for children and youth with Down Syndrome.

Modelled after SpecialCare (Autism), launched in August last year, SpecialCare (Down Syndrome) is available to children and young people between the age of 15 days and 30 years old. The policy provides outpatient medical and hospitalisation coverage due to accidents and 17 infectious diseases. It is renewable up to the age of 75.

Applicants only have to undergo a simplified underwriting and annual premiums start from S$198. “People with Down Syndrome form a segment that is usually denied insurance. Just as SpecialCare (Autism) has provided financial relief for families of children and youth with Autism in the event of an accident, we hope that SpecialCare (Down Syndrome) will likewise provide peace of mind and help in the expenses of families of children and youth with Down Syndrome.” said Mr Ken Ng, chief executive of NTUC Income.

Source: Channel News Asia

Hospitalization Insurance Plans Group Vs Individual

Dear Gurus,

I understand that children get hospitalized often when they are young. I’m thinking if I should get hospitalization insurance plans for them, since I have the option to extend my company group insurance to my family.

Angeline, 28

Guru Foo:
hospitalization insurance

Angeline, it is wise of you to know that the probability of children getting hospitalized in their younger days are higher. It’s just like how I will advise my clients: “Which will you rather pay? Insurance premium or hospital bills?

It is wise of you to opt for your company group insurance extended to your family as you can enjoy coverage at a group rate. Do find out if your company hospitalization insurance is portable. If it is non-portable, it means that you and your family will not able to enjoy the coverage once you leave your company and by then, some of you and your family may have experienced changes in your health and will become not insurable.

If it is non portable, do consider taking up some form of individual insurance coverage.

Guru Ed:

As Guru Foo has mentioned, having a portable insurance is more important than an affordable insurance, because if it is not portable, it only gives you a sense of false security that you are protected. But once you are not the employee of the company, all your coverage is lost.

Since the liberalization of our Medisave account in Singapore, many insurers are providing child hospitalization insurance plans at an affordable premium payable via Medisave. One of the insurers even provide free coverage till the child turns 20. All the insurers have the option to add a rider payable by cash if you feel that the basic plan is insufficient. It is important that you have a comprehensive and portable medical plan that you truly own.

About the Authors

Guru Ed, has achieved both BSc(Hon) Computing & Information System and Diploma in Banking & Finance.

He is a strong believer in living a balance lifestyle. Other than spending quality time with his 3 lovely children, playing basketball and participating in mini marathon is something that he enjoys. He had 6 years of finance industry related experience.

Guru Foo, has a BSc in Accounting & Finance. Previously, working as a Priority Banker in a leading off-shore bank He is passionate about educating the public about personal finance. Currently, he is in the process of completing his Certified Financial Planner (CFPTM). He is an animal lover and avid runner who participate in Singapore Standard Chartered run yearly. He currently runs his Wealth Management Practice.

You can read about him on his blog: YourMoneyGuru.livejournal.com. You can contact him at kevin_foo@hotmail.com

How Can I Teach My Children To Be Prudent About Money?

Question:
How can I teach my children to be prudent about money?

Mummy knows Best

Answers:

Guru Ed:
Thank you for asking! It’s my area of expertise! Having 3 young children of my own, it has always be an area of concern for me.

piggy-bank-blueFirstly,for some saving money tips, take them to a bank to open their own savings account.

Secondly, ensure you bring them to a place to choose their own “piggy bank” to ensure that they have an ownership.

Lastly, lead by example, make sure you as a parent also save at least 10% of your income, showing them that you can save too!

Guru Foo:

If your children is of a very young age whereby “money” is nothing has no meaning to them, then , you may wish to consider what Guru Ed has suggested. Inculcate to them, the value of money by starting a saving habit.

If your children already have the ability to count their money, then you may want to start them off with a budget.

On top of that, you can also consider teaching them about making money, for example, making handy crafts to sell to make some pocket money for themselves.

With the money, perhaps you can teach them about value of money, like giving it to charity to help others in need or to save it to buy things that they want rather than to ask for it. Earn it, not ask it.

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