Is your family adequately protected?

Is your family adequately protected?

Everyone has their own understanding and views about insurance, but it’s good to get an expert’s perspective to see if you have thought through everything.

Have you ever wondered about how much insurance other families just like yours are purchasing? Or if the cover you have is enough to suit your needs.

To help guide you through your decision making, we met up with three different families, at different stages of life, and asked them about what choices they’ve made about insurance. In addition we asked a professional financial adviser to weigh in on their financial portfolio.

Our expert is Mr. Poh Choon Kia, CFP®, FChFP, AIFP (S’pore) is a Senior Financial Services Director at Professional Investment Advisory Services (PIAS), an independent financial advisory firm.

He is a successful veteran in the financial planning and wealth management industry with more than 14 years of experience. He has also been featured as an expert speaker on financial matters for TV programs such as “MoneyWeek” and “Frontline News”.

Family insurance

Young newly married couples can be more focussed on their current lifestyle. However, they should start preparing from now for their future kids.

The newlyweds

Public officers Nancy Goh*, aged 28 and John Ng*, aged 31 are newly married and will soon move into their new 4-room HDB flat in Sembawang.

Income, expenses and attitude to saving

Their monthly household income is $9,000.

John currently owns a hatchback compact car, but the couple plans to upgrade to a larger vehicle when they have children.

They have a joint bank account for shared household expenses such as groceries and daily necessities. This also acts as a combined pool for bigger ticket items such as renovation of their home, new furniture and appliances.

The couple has several large monthly recurring bills: Car season parking fees and road tax as well as personal care for Nancy – hair salon bills, manicures, facials and the like. John pays for his car’s road tax, loan installments, petrol and his personal items out of his own account.

Their approach to savings is quite relaxed. “Individually, we both spend wherever we need and occasionally splurge on good food or luxury items, but both of us will make it a point to save a portion of our salary for the future,” says Nancy, although she admits there is no fixed amount that they commit to saving each month.

The couple is now preoccupied with short-term savings for their upcoming wedding celebrations and home renovations.

Current insurance choices

Currently, John is covered by a term life insurance plan that he bought when he was in the army. Nancy owns a whole life insurance policy purchased when she graduated from University. Together, John and Nancy have an investment-linked plan as well. These plans will mature when the couple are in their 50s, and yield around $100,000.

The expert view

It would seem that the young couple has not reviewed their financial plan for a while, given that most of their plans were purchased when they were younger and had no dependents.

Now that they are married, considerations should be factored in for each other and also for future family planning.

First, I’d suggest they consider purchasing a Medisave-approved Integrated Shield Plan for hospitalisation and surgical needs. At their age, the premiums would be fully payable from Medisave, hence it would not disrupt their short-term wedding and home renovation goals.

Getting health insurance when young and healthy is important as it ensures that the medical plan doesn’t come with any exclusions.

The couple can consider getting an affordable rider to defray the cost of the deductible and co-insurance as well. In Nancy and John’s case, if they opt for Aviva’s MyShield Plan 1 or 2, they can benefit from the additional advantage of securing free coverage for their future children.

They should also consider a joint-life reducing term plan to cover the mortgage of their HDB flat. If either of them moves on prematurely, the coverage will ensure that the other person can still keep the flat.

I would advise the couple to review their financial plan once they have declared the liabilities from their wedding and home renovation.

What kind of insurance cover should you be looking for if you have kids? Click on the next page to find out.

The goal-oriented savers

Executive Leon Teo* and his homemaker wife, Xiao Ling*, both aged 30, have a three-year old child. They own a condominium and a car.

Income, expenses and attitude to saving

The couple have a monthly household income of approximately $5,000.

They are diligent when it comes to saving. They have a separate savings account where they set aside 10% of their income every month. The rest of their income goes into their joint account which they use for mortgage repayment, bills and everyday expenditure such as groceries, condo
management fee and petrol.

Family insurance

Parents must remember that their children need to have health insurance too.

Current insurance choices

“Both of us have health insurance policies with riders. We also have policies that pay cash for each day we’re hospitalised,” shares Leon. They also have life insurance with critical illness cover, as well as an annual family travel insurance plan.

The Teo family is not looking to purchase any more insurance plans in the near future, as they are currently focused on short-term savings.

Leon explains, “We are concerned whether we will be able to save enough for our child’s education fund. We are also concerned about the huge cost of buying another car once the current one gets scrapped when it reaches its 10th year.”

The expert view

Leon and Xiao Ling have done their part to get started with some planning, however they should be aware of certain gaps in their planning.

While they have health insurance for themselves, they have not secured any for their child. Maximising Medisave dollars to secure a good health insurance plan for the child is important as, typically, young children and the elderly have the highest incident rates in terms of hospital admissions.

They should also consider a joint-life reducing term plan for their condo mortgage. Both the health insurance for the child and the mortgage insurance are relatively affordable and should not have any material impact on their finances.

They could consider using an endowment savings plan to help save for their child’s education. Such plans offer the merits of a systematic saving approach, as well as the combination of a guaranteed maturity value and positive upside in the form of bonuses.

Unlike investments where the returns can be volatile, endowment plans come with a smoothing mechanism so that the returns are fairly stable throughout the years, regardless of market performance. This feature offers a more stable approach towards planning for an important goal such as tertiary education for the child.

If you have older kids or dependent parents, your insurance needs may be different. Read on to find out more about what the expert has to say about the kind of cover you should have.

The family planners

Marketing coordinator Nur Aisha* and education officer Fazli Musa*, both 38, are happily married with three children – two boys and a girl, aged between 4 to 10 years.

Income, expenses and attitude to saving

They have a monthly household income of $8,500 and live in a large five-room flat in Jurong West. The family car is a seven-seater SUV, which comes handy for their holiday and shopping trips to Johor Bahru and beyond.

Regular monthly expenses are all family-centred. They include car repayments and maintenance, some travel expenses, their insurance premiums as well as sundry expenses for their children, such as fees for extra-curricular classes.

The couple also supports Nur’s parents, both of whom live with her and are retired.

When it comes to savings and expenditure, the couple adopts a very structured approach. “We have a monthly budget which includes at least 10% savings,” explains Nur. “And we usually create a spreadsheet to tabulate our regular or ad hoc purchases. This helps us to plan and manage our finances.”

Family Insurance

A family where dependents include young children as well as older parents needs to have a much higher insurance cover.

Current insurance choices

Currently, their insurance plans include life insurance and health plans for every member of the family, as well as coverage for their car and home.

They have two endowment savings plans in place for their two eldest children, which will pay out when their son turns 21 and their daughter turns 18. They are looking to purchase a third endowment savings plan for their youngest child.

The couple is also looking to purchase an additional protection plan for themselves – they are covered for about $300,000 in total now, but feels they need more to ensure their children are sufficiently protected in case anything happens to them.

The expert view

Nur and Fazli have done well when it comes to managing their finances and they are aware of the gaps they need to cover, such as an education plan for their youngest child and the need to top up their existing coverage to cater for their dependents.

Indeed, their current protection level of $300,000 is insufficient, considering they are supporting three young children as well as Nur’s parents. Assuming Nur and Fazli currently spend half of their total income on supporting their dependents, and assuming that their dependents will be financially dependent on them for another 20 years or so, a coverage amount of closer to $1 million would be more appropriate. They can easily top up their existing cover for the next 20 years using affordable term insurance.

Another area of concern that the couple should be mindful of is that while they have saved for their children’s education, it seems they have not really looked into planning for their own retirement, which will likely come shortly after their youngest child graduates.

Once the couple has built up a basic liquid fund for emergency needs, they should start to divert their surplus into proper retirement planning for themselves.

What are some of the insurance choices that you have made for your family? Are there any questions that you would like to ask regarding the kind of insurance you should have for your family? Share your comments and questions with us below.

*All names have been changed to aliases to protect participants’ confidentiality.

This post was brought to you by Aviva, one of the leading insurers in Singapore.

This article was first published on Aviva’s Money Banter blog – for more useful tips and guides on financial planning subscribe to their free monthly-e newsletter!

The views expressed in this material may not necessarily reflect the views of Aviva Ltd (Aviva) or Professional Investment Advisory Services Pte Ltd (PIAS). The contents on this material shall not be construed as an offer or solicitation to buy, sell or subscribe for any investment or life insurance product or the giving of advice thereof as they are provided for reference and do not have regard to the specific investment objectives, financial situation or the particular needs of any recipient. Accordingly, no warranty whatsoever is given and no liability whatsoever will be accepted by Aviva or PIAS for any loss arising whether directly or indirectly as a result from you acting based on this information.

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