Insure to ease the squeeze
This article was first published on The Straits Times on 30th January 2022.
Ms Andrea Lim, who works in the finance industry, was in her 20s — a young mother with a two-year-old in tow — when she was diagnosed with lymphoma, a type of cancer that develops in the cells of the body’s immune system.
While adequate hospitalisation coverage provided some relief, she was still anxious about adding to her dependants’ financial burden.
Ms Lim, who turns 36 this year and has since recovered, has three kids aged 12, 6 and 4. Her parents are in their early 60s and are semi-retired, while her in-laws are 79 and 82.
She belongs to what is commonly referred to as the “sandwich generation” – those having to care for ageing parents and young children while balancing one’s own needs.
In Singapore, this broadly refers to the group of adults between the ages of 40 and 60.
Multi-generational needs have become more pressing amid the Covid-19 pandemic, adding to the stress for those who are “caught in the middle”.
How can the “sandwich generation” better protect themselves and their loved ones? With two sets of dependants relying on you for support, getting insured is essential to mitigate risks.
“Striking a balance between getting the right protection and sticking to your budget is key,” says Ms Lorna Tan, DBS Bank’s head of financial planning literacy.
Three key insurance recommendations
1. Consider term insurance to cover death, terminal illness and permanent disability It is critical to ensure adequate life cover so that your family can continue with a similar standard of living even when you are no longer around.
Term plans are more affordable compared to whole life insurance, and typically mean you get higher cover for the same dollar. But term plans do not build up cash values compared to whole life insurance plans.
What is a “sufficient” amount of coverage varies from person to person. The Life Insurance Association Singapore recommends basic life coverage of approximately 9 to 10 times of a person’s annual earnings.
If you have a home loan in your name, you should also consider getting a mortgage term plan, which will cover the outstanding balance of your mortgage loan in the event of death, total and permanent disability, or terminal illness.
This protects your loved ones from having to bear any outstanding mortgage loans and keeps the roof over their heads.
2. Ensure that each family member has a basic hospitalisation plan
All Singaporeans and permanent residents are covered under the national MediShield Life insurance plan, which helps to pay off large hospital bills and some costly outpatient treatments.
Private health insurance can provide additional coverage for hospitalisation in A/B1-type wards in public hospitals or in private hospitals.
As healthcare costs continue to rise, ensuring that aged parents are adequately insured against unexpected medical bills and treatment costs is a priority, says Ms Tan.
Young children, too, are susceptible to common ailments and may sometimes be hospitalised for supervision.
“Getting a hospitalisation plan or an Integrated Shield Plan can help to mitigate some of those risks.”
3. Critical illness plans are good to have
Understanding your family’s health history can help you identify your risks for certain illnesses or disorders.
Critical illness coverage is recommended, especially if you have a “higher-than-usual” chance of getting certain critical illnesses, such as cancers, based on your family’s medical history, says Ms Tan.
Putting your money to work
Apart from insurance, the “sandwich generation” must also focus on investing and saving.
To make your money work hard for you, have at least half of your assets in investments, says Ms Tan.
“Ensure that your investments are well-diversified to spread out the risks and ride out market volatility.”
Those new to investing can consider a regular savings plan, such as the DBS Invest Saver, that lets you invest a small sum regularly without having to actively monitor the market.
Robo-advisers, like DBS’ digiPortfolio, is another good way for investors to get started.
You should have at least 3 to 6 months’ worth of living expenses in an emergency fund — or more if you have dependants or work as a freelancer in the gig economy.
You can top up your parents’ Central Provident Fund accounts to help boost their retirement payouts. If you have spare cash, you can also consider doing the same for yourself and your spouse.
For Ms Lim, looking out for deals that can help “save some bucks” can go a long way too.
“(My husband and I) also recognise the importance of budgeting for each of our kids as well as our own daily expenses,” she says.
Funding your child’s education
Besides insurance, another product parents should consider is an education fund, primarily for saving towards your children’s varsity education.
For a start, you should consider the number of years before your child enters university and the amount you will need to provide.
As a gauge, with the average cost of about $40,000 for an undergraduate education in Singapore and an annual inflation rate of 1.6 per cent, you’ll need to save about $55,000 over the next 20 years for a newborn child.
Endowment plans are a popular option for parents who prefer not to take too much risk. Most endowment plans require you to commit to paying premiums for a fixed number of years (typically 10) and let you choose the payout age.
Many plans also come with riders, which give assurance that your child’s education will be provided for in the unfortunate event of your death, disability or critical illness.
This is the third of a five-part series on insurance.
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Disclaimers and Important Notice
This article is meant for information only and should not be relied upon as financial advice. Before making any decision to buy, sell or hold any investment or insurance product, you should seek advice from a financial adviser regarding its suitability.