Interesting Insights - OCBC Wealth Management

Have you done enough to protect your child?

28 August 2008

Being a good parent involves among other things, providing financially for your children. In this article, we explore what parents can do to secure their children's financial future and provide adequate protection from unforeseen circumstances.

Insuring your child’s financial needs

For starters, parents (especially the main breadwinners) should ensure that they have sufficient life insurance protection and critical illness coverage so that if something unforeseen happens to them, their children will have enough funds to keep them going till they are able to stand on their own feet.

Some parents may also wish to buy life insurance plans for their children to provide them with a “financial head start”. In doing so, parents avoid paying higher premiums if their children purchase a life insurance plan at an older age. It also guarantees their children's future insurability. There are insurance plans available that can cover children for death, total & permanent disability and critical illnesses for a short premium payment term. When the children are of age to take over the ownership of the policy, the premium would have been fully paid by their parents, thus allowing them to enjoy insurance coverage without the financial commitment.

Protection against hefty medical bills

The cost of hospitalization can setback a young couple significantly, especially since young children are prone to minor illnesses. Hence, one of the first things that young parents should do when they have newborns is to buy a hospital plan that will protect themselves and their children from hefty medical bills.

Hospitalization aside, parents should also consider covering their children for critical and child illnesses.

With good health insurance plans, parents can offer their children the best medical care without worrying about large medical bills, if the need arises. Good health insurance coverage will also enable parents to focus on taking care of their children if they fall ill, instead of worrying about how to pay hefty medical bills.

Providing for a good education

For most parents, a good education is one of the best gifts they can give their children. A good education can open up a world of opportunities for children in their future years.

However with inflation, the cost of education is poised to increase significantly, which could place a great financial strain on parents. For instance, the cost of a three-year non-medicine course in an Australian University currently costs about $126,000. In 15 years time, the cost is estimated to almost double to $238,000.

In planning for their children's education, parents could earmark part of their savings for their children's future education and grow this amount by implementing a long-term investment plan that should be reviewed regularly. If parents are not able to invest a lump sum, they could embark on a regular investment plan that involves a range of unit trusts. This will allow them to enjoy diversification benefits across asset classes and over time.

Another alternative is for parents to buy either a single or regular premium endowment plan, including a rider that would waive premiums in the event of death or total and permanent disability. This will give assurance to parents that their children's education will not be compromised in the event of unforeseen circumstances.

Inculcating good money habits in your child

Like a good education, inculcating good financial habits in your children will yield them lifelong benefits. This is especially important given the rising the affluence and peer pressure that children face currently - which could lead them to spend excessively and even fall into a debt trap in later years.

As such, parents should encourage their kids to be prudent and save for their future and for emergencies. In this respect, it is important for parents to lead by example. Children can also be given incentives to save regularly, and when they become teenagers, parents can start a co-funded regular premium plan or investment plan to impress upon them the importance of disciplined savings and investments.

Conclusion

Remember that once you become a parent, you have a responsibility to your child and that means among other things, providing them with a secure financial future. Part of this security also entails giving your children a good education and teaching them good money management skills that will benefit them in their adulthood.

Important Information

Buying a life insurance policy is a long term commitment. An early termination of the policy usually involves high costs and the surrender value payable (if any) may be less than the total premiums paid.

It is usually detrimental to replace an existing accident and health policy with a new one. A penalty may be imposed for early policy termination and the new policy may cost more or have less benefits at the same cost

This material is for general information only. It is not a contract of insurance. It does not constitute an offer to buy an insurance product or service. It is also not intended to provide any insurance or financial advice. The specific terms and conditions of a plan are set out in the policy documents. A person interested in the insurance policies should read the product summary and benefit illustration (available from respective insurers and their distributors) before deciding whether to buy the product.

A copy of the prospectus of the unit trust fund is available and may be obtained from the fund manager, or any of its approved distributors. Potential investors of a unit trust fund should read the prospectus for details on the fund before deciding whether to subscribe for or purchase units in the fund. The value of the units in the fund and the income accruing to the units, if any, may fall or rise.

Investors may wish to seek advice from a financial adviser before making a commitment to purchase a life policy or a unit trust fund. In the event that an investor chooses not to seek advice from a financial adviser, he should consider whether the life policy or the unit trust fund in question is suitable for him.

No representation or warranty whatsoever (including without limitation any representation or warranty as to accuracy, usefulness, adequacy, timeliness or completeness) in respect of any information (including without limitation any statement, figures, opinion, view or estimate) provided herein is given by OCBC Bank and it should not be relied upon as such. OCBC Bank does not undertake an obligation to update the information or to correct any inaccuracy that may become apparent at a later time. All information presented is subject to change without notice. OCBC Bank shall not be responsible or liable for any loss or damage whatsoever arising directly or indirectly howsoever in connection with or as a result of any person acting on any information provided herein.

The contents hereof are considered proprietary information and may not be reproduced or disseminated in whole or in part without OCBC Bank's written consent.

Insurance plans are underwritten by Overseas Assurance Corporation Ltd, a wholly-owned subsidiary of Great Eastern Holdings Ltd and a member of the OCBC Group, and are not bank deposits or obligations of, or guaranteed by OCBC Bank.