Allow me to share a case study:
When James and Emma embark in the thought process of preparing their Wills, they contemplated and deliberated on the idea of leaving a legacy for their 3 lovely children. Like most parents, they do not wish to deprive them of the hunger to work hard and strive towards their goals. Because they believe that a major ingredient of happiness comes not from a level of wealth, but from one’s accumulated accomplishments achieved via his/her effort. Yet, they also wish to leave them with a small gift before they depart from this world. James said: “We are not rich and cannot afford to buy a condominium for each of them. We are also against the idea of buying a jumbo insurance because we have witness numerous reports of family disintegration due to infighting among the siblings as it was not properly handled by the testator”
To quote from Mr. Leonard Lauder, the ex-chairman and chief executive of Estee Launder: “Money has the potential to divide families and cause lasting rancour, resentment and bitterness.”
3G Whole Life Plan
Eventually, the couple decided that the best gift they could offer to their children, is not to let them be a sandwich generation. Both endeavours to lead a healthy lifestyle and plan for their retirement well so as not to burden their children in their golden years. At the same token, after both have “handled in their respective “NRICs”, each child can continue to receive a stream of passive income. In the event of a dire financial state, each child can always surrender the policy and a tidy sum of money is there for their disposal. James and Emma decided that this is the best gift for their children so they can work hard towards their own financial independence.
We recommended a 3 generation whole life plan to achieve the above objectives. Broadly speaking the details are as follows:
There are 3 main objectives:
For 1st Gen (you): Providing a stream of retirement income in your lifetime
For 2nd Gen (your child): Passing the income stream to your child through ownership transfer of the policy to your child via policy assignment. He or She can surrender the policy anytime.
For 3rd Gen (your grandchildren): Providing a death benefit payout to the grandchildren when your child departs in the future
Below is a generic 3G product (with your child as the life insured) to showcase the above merits.
Single premium: $150,000
Annual Payout: $4,896 from 49th month (3.26% of invested capital)
Payout term: Till the death of the child
Surrender values: Continue to grow in addition to payouts collected.
Death Benefit: Continue to grow in addition to payouts collected.
“Money has the potential to divide families and cause lasting rancour, resentment and bitterness”
In my opinion, this 3G product is better than a perpetual corporate bond because it is a regulated product and back by policy owners protection scheme. That said, I am sure some investors will not be impressed with the yield and prefer to place their bets in the stock market. As the saying goes, high risk results in high rewards. I recall a time when Hyflux 6% perpetual/callable bonds were in huge demand especially for the retirees when it was issued in 2016. In retrospect today, I think most if not all of the investors would rather place their capital on this 3G plan for the peace of mind especially when the payout tenure stretches into 3 generations. Furthermore unlike investing in stocks, there is less of a worry about a drop in asset prices or a cut in dividend. This is a regulated insurance product with negligible default risk.
Therefore, if you do not see the need or have the means to leave behind a huge estate for your children, why not consider the idea of a passive income which will aid in your retirement as well as provide for your children. Statistically speaking, ladies tend to have a longer life span compared to men. After the demise of the husband, the policy could be assigned to the wife so that she has some financial support for the reminder of her life. Thereafter, the policy could be finally assigned back to the child for his/her benefit.
Hope above information provide you with some pointers with regards to estate & retirement planning.
