There are many creative ways that you can invest - When starting a family, a lot of people consider buying insurance – not just for a medical or life plan but also to save up for their children's education.
Is insurance what you want, though? Should it be your choice of investment for coverage/protection as well as savings?
Carol Yip, founder and CEO of Abacus for Money, says while insurance is good for certain things like medical and accident coverage, it shouldn't be seen as the only option, especially when it comes to savings.
“Because a lot of us find it hard to save money, we think we must buy insurance. In which case, how much is enough? I have to say that you can never buy enough of insurance.
“The question is, must you buy insurance? There are many ways to save up and build an education fund. My tip is don't buy so much insurance that most of your salary goes to paying the premiums every month. If you do that, where are your savings then?
Find out the cost of tertiary education and get your child involved in making the decision of what and where to study.
“When you talk about a family, the objective is to make sure that should anything happen, the parents have enough money to pay for their medical and hospitalisation bills as well as to take care of the family. There's also the need to pay for their children's medical bills and education,” says Yip.
Objective of the policy
She advises couples intending to buy a policy for their family to first ask themselves what is their objective – do they want coverage or investment.
Yip warns couples not to buy insurance for the sake of buying it, just because a friend or family member is an insurance agent.
“Half the people who buy insurance are helping a friend or a relative. If you do that what happens? You are just buying the policy for the sake of buying. You are not really interested in what you are buying. You are just helping someone.
“Then when you need the money you find that you can't claim because you did not buy the policy that suits your needs. This is because when you were buying you did not understand what you were buying,” she says.
Research, listen, ask, note down
Yip suggests that couples do their research before approaching an insurance agent to buy a policy. This way, they will be in a better position to ask the pertinent questions and compare policies to find one that suits their family's needs.
She also suggests shopping around as different insurance companies offer slightly different policies.
When you're ready to sit down with your agent, ask for a quotation. Look at it and see how much you have to pay, not just today, but also as the premium goes up over the years.
This is important as it will affect your cash flow.
Yip recommends those buying insurance to jot down points when their agent explains the policy to them. Insurance contracts are not easily understood by everyone and at least if you jot down the points you will be able to refer to it 10 years later when you can't remember why you wanted this policy and what attracted you to it.
“If you have to, sit down and go through the policy contract point by point with your agent. Write your own summary of the important points as you go along,” she says.
For healthcare and hospitalisation, Yip recommends families get a medical plan. This will help them pay the hospital and medical bills as well as take away the stress of worrying about how to pay the bills.
She suggests families get something that they can afford and according to the parents' income level.
Education fund
As for education, Yip suggests couples keep their options open by exploring all possibilities for investment/savings rather than just zeroing in on insurance.
“Society has come up with this paranoia; everyone now feels that they must buy insurance for their children's education fund.
“There are cases of parents who have taken insurance for their children's education and then find, years later, when they cash out the plan there really isn't a lot of money. Why? Because education costs and living expenses have increased. Basically, the cost of sending a child overseas has gone up.
“In addition, we would have had a few financial crises since they started investing and each time there is a crisis there is damage to the investments and definitely the cash value will not be on the uptrend all the time.
“It also depends on your timing for when you cash out. If there is a crisis in 2009 and you cash out around that time, definitely the value will be less,” says Yip.
She asks parents to think of other creative ways to save up for their children's education.
Among them are investing in property, maintaining it by renting it out and then selling it just before you need the money for your child's education.
Another way is to buy currency when the exchange rate is favourable to you and then keeping it until it's time for your child to go abroad. Then use that money to pay for school fees.
“There are many creative ways that you can invest. You don't just have to invest in conventional ways because in the end you may find the cash value is not much at all,” she explains.
Is insurance what you want, though? Should it be your choice of investment for coverage/protection as well as savings?
Carol Yip, founder and CEO of Abacus for Money, says while insurance is good for certain things like medical and accident coverage, it shouldn't be seen as the only option, especially when it comes to savings.
“Because a lot of us find it hard to save money, we think we must buy insurance. In which case, how much is enough? I have to say that you can never buy enough of insurance.
“The question is, must you buy insurance? There are many ways to save up and build an education fund. My tip is don't buy so much insurance that most of your salary goes to paying the premiums every month. If you do that, where are your savings then?
Find out the cost of tertiary education and get your child involved in making the decision of what and where to study.
“When you talk about a family, the objective is to make sure that should anything happen, the parents have enough money to pay for their medical and hospitalisation bills as well as to take care of the family. There's also the need to pay for their children's medical bills and education,” says Yip.
Objective of the policy
She advises couples intending to buy a policy for their family to first ask themselves what is their objective – do they want coverage or investment.
Yip warns couples not to buy insurance for the sake of buying it, just because a friend or family member is an insurance agent.
“Half the people who buy insurance are helping a friend or a relative. If you do that what happens? You are just buying the policy for the sake of buying. You are not really interested in what you are buying. You are just helping someone.
“Then when you need the money you find that you can't claim because you did not buy the policy that suits your needs. This is because when you were buying you did not understand what you were buying,” she says.
Research, listen, ask, note down
Yip suggests that couples do their research before approaching an insurance agent to buy a policy. This way, they will be in a better position to ask the pertinent questions and compare policies to find one that suits their family's needs.
She also suggests shopping around as different insurance companies offer slightly different policies.
When you're ready to sit down with your agent, ask for a quotation. Look at it and see how much you have to pay, not just today, but also as the premium goes up over the years.
This is important as it will affect your cash flow.
Yip recommends those buying insurance to jot down points when their agent explains the policy to them. Insurance contracts are not easily understood by everyone and at least if you jot down the points you will be able to refer to it 10 years later when you can't remember why you wanted this policy and what attracted you to it.
“If you have to, sit down and go through the policy contract point by point with your agent. Write your own summary of the important points as you go along,” she says.
For healthcare and hospitalisation, Yip recommends families get a medical plan. This will help them pay the hospital and medical bills as well as take away the stress of worrying about how to pay the bills.
She suggests families get something that they can afford and according to the parents' income level.
Education fund
As for education, Yip suggests couples keep their options open by exploring all possibilities for investment/savings rather than just zeroing in on insurance.
“Society has come up with this paranoia; everyone now feels that they must buy insurance for their children's education fund.
“There are cases of parents who have taken insurance for their children's education and then find, years later, when they cash out the plan there really isn't a lot of money. Why? Because education costs and living expenses have increased. Basically, the cost of sending a child overseas has gone up.
“In addition, we would have had a few financial crises since they started investing and each time there is a crisis there is damage to the investments and definitely the cash value will not be on the uptrend all the time.
“It also depends on your timing for when you cash out. If there is a crisis in 2009 and you cash out around that time, definitely the value will be less,” says Yip.
She asks parents to think of other creative ways to save up for their children's education.
Among them are investing in property, maintaining it by renting it out and then selling it just before you need the money for your child's education.
Another way is to buy currency when the exchange rate is favourable to you and then keeping it until it's time for your child to go abroad. Then use that money to pay for school fees.
“There are many creative ways that you can invest. You don't just have to invest in conventional ways because in the end you may find the cash value is not much at all,” she explains.
Yip also recommends allowing the children to know the cost of studying abroad. In the case of one of her clients, a teenager changed her mind about studying a particular course after finding out the fees involved.
A teenager who is not sure of what he or she wants to study, might opt for a cheaper option.
She advocates parents and children attending education fairs to find out the actual cost involved in tertiary education here and abroad.
Savings
How about insurance as a form of investment then?
Yip explains that with insurance you are not in control of your own investment because when you buy insurance you are relying on other people to invest for you. Because the insurance company needs to take care of a pool of investors, the investment choices will not be specific to your needs.
“I always advocate that you should handle your investment yourself. You will then be able to buy and sell according to whether the market is good or bad. It has to be constantly managed. With insurance you can't manage it all the time. You only keep paying the premiums. You can't tell the investment manager what to invest in and what not to invest in.
“So, it's always better to handle your investments yourself. And, if you don't know enough about the market to invest yourself, you can always hire professionals like financial planners to advise you and help you.
“If you want to invest on your own you can buy property, unit trust or even currency,” says Yip.
Long-term plan
Should families think long-term when buying insurance?
“If I have a family and I know my children will take care of me, and I think I have enough assets (houses to collect rental from), I know how to invest, I don't think I need insurance for the long-term. I can say there are many people who don't buy insurance because they know they have enough assets and cash flow to pay for whatever they need.
“Even with insurance, if you have cancer it only covers you up to a capped amount. Beyond that you will need to find a way to pay for your treatment yourself.
“The long-term plan is to hope that you don't have to claim from your insurance,” says Yip.
Conclusion
She advises parents to do their research and b e a bit more knowledgeable in their insurance policies and what they are investing in.
“I know that half the time people are not interested in insurance; they don't even know what policies they have,” says Yip.
Her practical advise to parents:
“Make sure your children are your best friends and that they will take care of you until you pass on. They are your insurance. Your family is your insurance and your job is also your insurance.
“Have a business or properties from which you can continue getting a profit or rental from.
“This is also insurance but it's a different type of insurance; this way you create your own 'insurance' structure,” she explains.
She recommends families getting medical, personal accident and maybe a term life policy if they want to.
“My best advice is to have healthy communication within the family – make sure the family understands what you are doing and what your objectives are. You need communication between husband and wife also – which hospital to send you to if there's an emergency.
“Don't just look at insurance. You should look at everything – insurance, investments and career. Look at it and keep reviewing it over time to time to see if you are on track. And once in a while monitor if it's more expensive to get ill now. Keep track of where the good doctors are who don't charge a lot.
“Keep track of your options so that when it's time to make a decision you will do so rationally.
“And, when the children are old enough get them involved and tell them what you have done and show them your insurance policies. Check your insurance policies if you're on track according to your needs.” ( parenthots.com )
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