What Type of Plans Should I Buy With A Baby On The Way?
Many parents may have this big question on their mind when they discover they have a little one coming along: “What type of financial plan should I buy for my little one so that he/she can get a head start in life?”
Besides the usual “kids’ menu” of the following: Life Insurance, Hospitalisation & Surgical Insurance (aka. Health Insurance), Endowment, Personal Accident and Investment-Linked Life Insurance Plans, many parents may have neglected the importance of ensuring that both parents should have adequate coverage before they embark on taking up plans for their little ones. Remember the old wives’ tale of: “If given only one choice, who should you protect – The Golden Goose or the Golden Egg?”
In my professional opinion, the financial planning priorities of a family should include:
1. Coverage for parents
- Hospitalisation and Surgical Insurance (aka. Health Insurance) with cash rider (that takes care of deductibles and co-insurance)
- Critical Illness Protection (Having a lump sum to offset alternative medical treatments, possible renovation of home to accommodate critical illness care, daily living expenses due to no-pay leave to recuperate at home, etc)
- Family Income Protection (Leaving a stream of income for your loved ones should one prematurely decease before the average mortality age)
- Disability Income Protection (Having a lump sum and stream of income to offset disability treatments, possible renovation of home and car to accommodate for disability, daily living expenses due to the fact that one may not be employed in the same capacity as before the disability)
2. Hospitalisation & Surgical Insurance with cash rider for your little ones
- When a baby is born in Singapore after 2011, he/she is by default under CPF’s Medishield insurance, unless the parents have opted out.
- Parents are strongly encouraged to change to a Private Integrated Shield Plan as these plans are more comprehensive. ^1
3. Tertiary Education Planning for your little ones
- Current tertiary fees for a university degree costs between S$7,460 to S$21,740 a year (depending on the degree one is pursuing) for a Singapore citizen. ^2
- In year 2032, a university degree is estimated to cost between S$16,664 to S$48,560 a year.
- It is prudent is start saving for your little ones as early as possible, as the savings amount will increase exponentially with each passing year where one procrastinate.
4. Critical Illness Planning for your little ones
- Many parents may have neglected the significance of Critical Illness Planning for little ones.
- In most cases when a child contracts critical illness, one of the parents will most likely quit his/her job and stay at home to take care of the child full time. This may reduce a significant portion of the family’s disposable income.
- By doing proper critical illness planning for the child, the impact of a reduction in disposable income can be minimised.
5. Personal Accident planning for your little ones
- A personal accident plan may be bought once a child reaches 6 months of age.
- Being a child who is active and beginning to understand and explore the world, accidents may occur anytime.
- It would be prudent to purchase a personal accident plan that covers outpatient treatments of your little ones.
- Some personal accident plans that are more comprehensive also provides coverage for Avian Flu, Chikungunya Fever, Dengue Fever, Hand Foot Mouth Disease, etc.
6. Retirement Planning for you and your spouse
- After all the above Financial Planning objectives have been provisioned, it is time for you and your spouse to sit down and start thinking about how you would like to live your retirement!
In my upcoming articles, I will explore in more detail on each of the above Financial Planning Objectives.
^1 Ministry of Health https://www.moh.gov.sg/content/moh_web/home/costs_and_financing/schemes_subsidies/Medishield/Comparison_of_MediShield_and_Private_Integrated_Plans.html
By Winston Tan, Chartered Financial Consultant
This article was first published in The New Age Parents e-magazine
Financial Planning For Your Family Series:
Part 2: Hospitalisation and Surgical Insurance
Part 3: Protecting The Golden Goose or Golden Egg?
Part 4: Planning Your Child’s Future Education
Part 5: Personal Accident Plans
Part 6: Planning For Your Retirement