Life insurance for a child

1. Should I buy a life insurance policy for my child, so that my child can enjoy a lower premium rate by starting at a young age?

It is better for your child to take the life insurance policy at a later date, when he or she starts to work. Although the premium is higher at an older age, the increase in premium is less that the premiums that you had to pay during the earlier years (including the gain on investing the premiums).

The insurance agent is likely to sell you a high cost life insurance policy, such as an endowment or whole life policy, for your child. If your child buys a policy at a later date, he or she can buy a low cost term insurance and pay a premium that is much lower than the endowment or whole life policy. There is no need for you to buy life insurance for your child at an early age.

2. Should I take a separate life insurance policy to save for the tertiary education of my child?

It is better for you to invest the savings in a low cost investment fund. You will be able to earn a much higher return, compared to an education policy.

There is no need to take a separate policy for each child. You can make the total savings in your own investment account to meet the future financial needs of your family, including education and retirement. You will retain the flexibility on the amount, timing and purpose of the withdrawals from the investment account.

To ensure that there is adequate savings for your family, you should have adequate life insurance on your life, e.g. a level or decreasing term insurance. It is low cost and provides a large coverage.

3. Do I need to buy any insurance for my child?

You only need to buy insurance to cover the medical expense of your child.The Medishield policy from CPF is most suitable. It will cover the large hospital bills. You can pay the deductible from your Medisave account or from your personal savings.

4. I have bought an education policy for my child already. Should I continue the policy or cancel it?

You can ask the insurance company to quote the following:

(a) Cash value of the policy at the present time
(b) Cash value (estimated) of the policy in 5 years time
(c) Premium payable for the next 5 years

If the yield for the next 5 years is more than 3% per annum, it is all right to continue the policy. If it is less, you can cancel the policy and invest the premium in a low cost investment fund.

5. Does the life insurance policy taken on my child provide a good yield?

The yield is usually quite low, due to the high charges taken to pay commission to the agent and profit for the insurance company. Many policies take 15 to 20 years to reach the break-even point (i.e the cash value is equal to the total premiums paid). If you have invested in a low cost investment fund, you are likely to see a gain of at least 50%.

Tan Kin Lian