Insurance & Costs of having and raising a child

[Temperament]

As parents, we never question about the cost when ever the child needs it.
Nevertheless, we will always try to give the best to our to our children even when there is not really a need.
i suppose this is our traditional asian's way.
i hope the "Ang Moh " feels the same.
In science, maybe you can say we make sure our gene survive us.

[Bibi]

I would say responsible parents will give all to their children when they need it. I have seen a parent got into huge debt to cure their child of cancer. I have heard of a asian parent forsake their child when she was born blind. This child was then adopted by ang mo and became a music prodigy.

[Musicwhiz]

I think one should buy the best insurance one can afford for their kids, especially for H&S as the chances of a big illness is pretty high when a child is young. Look at the HFMD cases and you would already be aware of the need to be properly insured - hospital bills can run up to thousands of dollars if one is not careful.

As for Term versus Life, I think the debate here has gone on for a few pages. Basically I have switched my policies (including my daughter's) to Term, and chosen to invest the rest. Others who are not comfortable may buy endowment plans or Life insurance where the insurer invests the money for you - usually the returns are not enough to beat inflation of 4% (currently) but are enough to beat bank savings deposit rates.

[Muck]

I think one should buy the best insurance one can afford for their kids, especially for H&S as the chances of a big illness is pretty high when a child is young. Look at the HFMD cases and you would already be aware of the need to be properly insured - hospital bills can run up to thousands of dollars if one is not careful.

As for Term versus Life, I think the debate here has gone on for a few pages. Basically I have switched my policies (including my daughter's) to Term, and chosen to invest the rest. Others who are not comfortable may buy endowment plans or Life insurance where the insurer invests the money for you - usually the returns are not enough to beat inflation of 4% (currently) but are enough to beat bank savings deposit rates.

Yup. I guess insurance is very much abt buying peace of mind too. There are those who would argue that you should not purchase for a child since it has no dependants. But I have bought for the sole reason that I do not want to face a situation where the child when grown up is no longer insurable due to some illness or injury while growing up. I also believe in BTITR, but I too have insured a small sum in a whole life policy with CI coverage, as I am not aware of any term plan that can cover CI to age 99. If anyone knows of one I would be most grateful and would replace my child's whole life policy with that.

[d.o.g.]

I also believe in BTITR, but I too have insured a small sum in a whole life policy with CI coverage, as I am not aware of any term plan that can cover CI to age 99. If anyone knows of one I would be most grateful and would replace my child's whole life policy with that.

There seems to be a fundamental misunderstanding here.

An insurer actually operates 2 separate businesses. One provides insurance coverage. The other provides investment services.

When you buy a whole life policy, the insurer splits the money internally among the 2 businesses. Some of it is used to pay for insurance cover. The bulk of it is invested.

Over time, the insurance coverage becomes more and more expensive. So the cover is reduced. Eventually there is no insurance coverage at all.

Conversely, the invested sum grows with time.

Why are these 2 aspects important? Because the insurer only presents one value - the policy coverage - to the policy holder. The policy holder does not see that:

1. In the early years, most of the value in the policy coverage comes from the insurance cover, and very little comes from the invested sum. This is also why the cash value is so low - the money (less commissions to the agent) has not had time to grow.

2. In the later years, there is essentially no actual insurance coverage, all the value comes from the invested sum. This is why the policy cash value can exceed the original cover purchased - because the invested sum has grown significantly.

When you buy term and invest the rest, you can clearly see the 2 components. But when you buy a whole life policy, the insurer adds the 2 components together so you only see the total value.

Remember that the insurer only makes money when you DON'T claim on the policy. So a term life policy that covers to age 120 (for example) is a sure-lose policy for the insurer. But a policy that covers to age 65 can be profitable because most people today live beyond 65, so the insurer expects many such policies to expire unclaimed. Covering to age 99 will mean a very high claim rate, hence a very high premium.

You can see for yourself how expensive a term policy that covers to age 99 is, compared to one that covers to age 65. Most people are dead by 99 i.e. the insurer will lose money paying the claim. Hence the astronomical premiums. For CI the premiums are likely to be even higher (lots of different illnesses versus only one type of death) so the insurers don't bother to offer it, as they expect the take up rate to be very low.

If you buy a whole life policy, the insurer probably doesn't bother to provide any coverage beyond 65, most/all the coverage after that is actually coming from the invested money. So do the same for yourself, buy insurance coverage to age 65, and self-insure from your investments after that.

As usual, YMMV.

[Muck]

Thanks to D.O.G. for taking the trouble to re-iterate your earlier points. Much appreciated. What does trouble me somewhat is that I won't be around forever, and fear whatever money 'invested' in lieu of the whole life policy premiums might no longer be there once needed when the child is much much older. I guess a logical argument would be that the child would have been an adult by then, and should be responsible for his or her actions. So if he had been cheated, misinvested or squandered that invested money, then he should face the consequences. After all, as parents we'll all have to learn to let go someday...

[Temperament]

Yes! We have to let go.
In fact it is best as "early" as possible in a subtle way.
At least we are still around to back up if necessary.
Anyway, backing-up insurance is a lifetime job for us, parents.

i admit sometimes i use the "law of the jungle" to try to make him understand, everyone has to be responsible for himself, eventually.
Like if you are over 18 or 21 you are liable/responsible for all your actions as far as the Law is concerned.
Anyway, i use to emphasize to him when he was in his teenage year (the most difficult growing up years of between child/adult) that you can choose what you want to do but you can't put the "blame" on some one else for the result of your action.
You have to be responsible for your actions.
Anyway, the Law will ensure you are, once you are over 18 in Singapore.
So he understands early "The Law of The Jungle".

[Muck]

I still have much much to learn in parenting
I think it's a really good point to let go earlier while we're still around. Thanks for the tip!

[Bibi]

I am not aware of any term plan that can cover CI to age 99. If anyone knows of one I would be most grateful and would replace my child's whole life policy with that.

I believe HSBC do sell Term (death+CI) till age 99 for children newly born. There used to be a few more companies which sell such products but many drop such policies when the demand is not there. You have to think whether its necessary to cover till age 99 and whether it is a good move to replace a Life or Endowment policy with Term. I thought of replacing my wife policies with Term and help her invest. However, as my health is not good these few years and what if i "go" at an early age? Who is going to invest for her and she knows nuts about investing?

[d.o.g.]

I thought of replacing my wife policies with Term and help her invest. However, as my health is not good these few years and what if i "go" at an early age? Who is going to invest for her and she knows nuts about investing?

You can put the money into index funds. Most insurers don't beat indexes over the long term unless they are led by people like Warren Buffett (Berkshire Hathaway), Lou Simpson (GEICO) or Prem Watsa (Fairfax Financial).

As with children who have to learn to handle their money themselves someday, your wife has to learn a little bit about investing. She doesn't need to be an expert. Many women have found themselves in financial trouble after divorce or widowhood because they were homemakers and left all the money matters to their husbands. When they got divorced or widowed 20 years later, they suddenly found themselves vulnerable to predators, from friends who suddenly needed to borrow money, to salesmen selling financial products, MLM promoters and outright Ponzi scammers.

It is not just the loss of a breadwinner, but the loss of savings through poor investments and deceit by conmen that really damages the quality of life. Add the fact that she may be emotionally vulnerable after having lost a long-time companion, and you have a recipe for disaster. There is a reason why some conmen specalize in "wooing" recently widowed women and making off with their savings.

It is unwise for financial knowledge to reside in only one half of a couple. Likewise for things related to the house (maintenance, buying/selling). Anything that has a major impact on the quality of life (finances, housing, child-rearing) should be adequately understood by both parties, even if one of them is clearly an expert.