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04:46 AM Apr 30, 2011
Managing finances for you and your family

by Paul Hughes

Singapore may rank fifth in Asia and 17th in the world in terms of the penetration rate of life insurance cover but Singaporeans are still severely underinsured.

According to a Life Insurance Association report, the existing life insurance cover of working adults in Singapore averages only S$165,000 compared with a typical need of approximately S$500,000.

This makes you - and many Singaporeans like you - 66 per cent underinsured. Add to this your financial responsibility of being a parent and a child, and you run the risk of facing financial difficulties should an emergency occur.

So here are 10 easy tips to help plan for the financial security of you and your family:

1) Ensure coverage for yourself first

Always ensure that you are covered before your dependants so that if unfortunate events such as death or illness occur, and you lose the ability to provide income for your family, your insurance policies' payout can be used to finance your medical bills or your children's education.

You don't want to be a financial burden to your family.

2) Ensure sufficient insurance coverage for you and your family

Ensure that you are adequately covered so that your family will not get into financial difficulties should anything happen to you. This is important if you have dependents, such as young children, or if you are the sole breadwinner. Being adequately covered means that you have coverage in areas such as death, disability, critical illness and hospitalisation.

Get your financial adviser to do a review of your policies annually or when there are significant changes in your life such as when you get married, start a family or buy a new house. This is to ensure that you are financially prepared in the event of unfortunate circumstances.

3) Plan for your children's education needs

Buy insurance for your children and prepare for their future. Insurance policies such as whole life and endowment plans provide protection, savings and cash value which is especially important for their education which is becoming increasingly expensive (see table).

According to the Consumer Minds International Research commissioned by AIA in September last year, the cost of university education globally is expected to increase by approximately 20 per cent by 2015, and another 20 per cent in the subsequent five years.

4) Teach your children to manage their finances

Teach your children how to save and manage their finances.

As the saying goes: "Give a man a fish and you have fed him for today. Teach a man to fish and you have fed him for a lifetime."

They will grow up to become independent and savvy individuals who can effectively manage their own finances and educate their own children too.

5) Protect your assets

Protect your assets, primarily your home, as you would want your family to have the same standard of living regardless of what happens. Seek policies that will pay for or reduce your outstanding housing loan, for example.

6) Clear non-mortgage debt first

Clear your non-mortgage debt so that your family will not have to deal with the remaining debt should anything happen to you. Non-mortgage debts include education loans, renovation loans and car loans.

7) Have a well-diversified investment portfolio

Take a look at your investment portfolio. Ensure that it is well diversified and that the asset mix reflects your risk appetite, needs and circumstances. This should be reviewed for potential adjustments twice a year as your financial priorities and financial markets may change significantly over the period. Ensure a mix of short- , medium- and long-term assets to suit your needs, responsibilities and wants.

8) Plan for your retirement

Increase your retirement contributions to take care of your old age so that you do not have to be dependent on your children. You can work out a sum which you should be putting aside monthly to ensure that you enjoy an independent and comfortable retirement. This is something you can help your parents start on too, if they have not yet done so. Start by investing your CPF savings.

9) Prepare a will

Prepare a will to ensure that your wealth is passed on to those you wish to pass it on to. Review it with your lawyer and personal financial adviser. You should update your personal financial adviser as soon as there are changes in your circumstances or financial needs.

You should also update your will once you have made any change in your asset portfolio. This will ensure that you have prepared adequately to provide financially for the family.

10) Leave a legacy for the third generation

Consider financial planning to provide for the third generation. Ensure that assets you are bestowing upon your children and/or grandchildren have sufficient liquidity. This will help them to avoid having to liquidate or sell these assets when the market is not in their favour.

Paul Hughes is the chief marketing officer of AIA Singapore.