Wealth accumulation tips for 3 generations
Studies show that Singaporeans are 11 times under-insured, if at all. And that a large number of them are only insured for 10% of their required needs. We seek expert advice from insurance giant AIA on how to properly insure ourselves.
Singapore has the most number of millionaires according to the Boston Consulting Group.
Yet, only 30 percent felt financially secure. “60 percent of Singaporeans feel that they are not saving enough while 11 percent said that they have no savings,” said the Straits Times (Jan 2010).
A Channelnewsasia.com (Nov 2010) report indicate that Singaporeans are:
- 11 times under-insured,
- Experts say that underinsurance is most common in adults aged 29 to 45,
- Young professionals and families with young children are more underinsured than others.
- A healthy individual requires almost S$500,000 of coverage in case of death, critical illness or disability. But most Singaporeans are only insured up to only S$48,000.
Despite this, Singapore ranks 5th in Asia and 17th in the world in terms of the penetration rate of life insurance cover. We asked AIA Singapore to share with us 10 tips to grow your finances for the next 3 generations.
1. Ensure coverage for yourself first: Always ensure that you are covered before your dependants so that if unfortunate events such as death or illness occurs, and you lose the ability to provide income for your family, your insurance policies’ payout can be used to finance your medical bills or your children’s education. In this way, your children will not be burdened by the financial commitments.
2. Ensure sufficient insurance coverage for yourself and your family: Ensure that you are adequately covered so that your family will not get into financial difficulties should anything happen to you. This is important if you have dependants, such as young children, or if you are the sole breadwinner. Being adequately covered means that you have coverage in areas such as death, disability, critical illness and hospitalization. Get your Financial Services Consultant to do a review of your policies annually or if there are significant changes in your life, such as getting married, starting a family or buying a new house. This is to ensure that you are financially prepared in the event of unfortunate circumstances.
3. Plan for your children’s education needs: Buy insurance for your children and give them a head start in life. Insurance policies such as whole life and endowment plans give them protection, savings and cash value which is especially important for their education. For example, AIA Smart Growth helps you to save to provide for your child’s university education while enjoying valuable insurance protection at the same time.
4. Teach your children to manage their finances: Teach your children how to save and manage their finances. “Give a man a fish; you have fed him for today. Teach a man to fish; and you have fed him for a lifetime.” They will grow up to become independent and savvy individuals who can effectively manage their own finances and educate their own children too.
5. Protect your assets: Protect your assets, primarily your home as you would want your family to have the same standard of living regardless of what happens. You may want to consider getting a policy such as AIA Mortgage Reducing Term Assurance where you can use the proceeds to pay off or reduce your outstanding housing loan in the unfortunate event of death, disability or terminal illness.
6. Clear non-mortgage debt first: Clear your non-mortgage debt so that your family will not have to deal with the remaining debt should anything happen to you. Non-mortgage debts include education loans, renovation loans and car loans.
7. Have a well-diversified investment portfolio: Take a look at your investment portfolio. Ensure that it is well diversified and that the asset mix you have reflect your risk appetite, needs and circumstances. This should be reviewed for potential adjustments twice a year as your financial priorities and financial markets may have changed significantly. Ensure a mix of short-term, medium term and long term assets to suit your needs, responsibilities and wants.
8. Plan for your retirement: Increase your retirement contributions to take care of your old age so that you do not have to be dependent on your children. You can work out a sum which you should be putting aside monthly to ensure that you enjoy an independent and comfortable retirement. This is something you can help your parents start on too, if they have yet to do so. A good place to start is by investing your CPF savings. Consult your financial advisor for more expert advice and recommendations.
9. Prepare a will: Prepare a will to ensure that your wealth is passed on to those you desire to pass them on to. Review it with your lawyer and personal financial advisor. You should update your personal financial advisor as soon as there are changes in your circumstances or financial needs. You should also update your will once you have made any change in your portfolio. This will ensure that you have done adequate preparation to provide financially for the family.
10. Leave a legacy for the third generation: Consider financial planning to provide for the third generation. Ensure that assets to be transferred offer sufficient liquidity to avoid having to liquidate when the market is not in your favour. Universal life policies provides death coverage and at the same time, accrues cash value via interest credited to the plan, thereby protecting your assets and allowing you to leave a legacy for your future generations.