Where do I start with financial planning?

The best thing you can do about financial planning is to start working on it, upon receiving your first paycheck. Instead of waiting for a pay raise, make it a habit of setting aside a portion (say 20%) of your current take-home pay. Never wait for your pay to increase so that you do not need to set aside a budget for financial planning.

The simplified reason being that your lifestyle wants and needs increases, along with your new found increment. You can trust us on that, otherwise just try asking your parents for some money. Once this is clear to you, start to make realistic plans for your financial portfolio.

Getting your first Insurance policy?

Not all insurance policies are created equal. As your income is still low, seek to gain protection and health coverage with financial accumulation. Your first policy should enable you to have decent insurance coverage for life, while you are still healthy. We feel that a Whole Life Policy or Investment Linked Policy will be the most suitable options at this point in time.

Premiums will be significantly lower in your 20’s compared to when you are in your 30’s or 40’s with medical conditions. Both policies mentioned allow a high level of insurance coverage with cash value accumulated for the later stages of life.

At this point in your life, an Endowment policy should not be the primary focus. Its primary selling point on the flexibility for withdrawal will likely not contribute to your long-term financial priorities.

Read About: Saving Plans and Endowment Policy: Why it is not the best option

What should I consider for my first insurance policy?

Aim for the highest insurance coverage within your budget on your first insurance policy. This allows you to focus on wealth accumulation without constantly getting another policy to coverage your insurance shortfall.

Read About: How much life insurance coverage do you need?

Option 1: Coverage via a Whole Life Policy

A Whole Life Policy can provide one of the highest coverage when an insurable event such as Death, Early Critical Illness, Critical Illness, Total and Permanent Disability and Terminal Illness occurs. The policy accumulates cash value and can also be surrendered for cash, in the later stage of the policy owner’s life.

Sorting the results from compareFirst.sg based on the following conditions: Female, Age 25, Non-smoker, Critical Illness coverage, Highest Guaranteed Death Coverage, 21- 25 years Premium Term, S$100,000 Sum Assured.

The top 3 products in order of search results based on Highest Guaranteed Death Benefits:

• AXA: AXA Life MulitProtect Review
  • Annual Premium: S$4,812
  • Coverage multiplier: 5 times
  • Guaranteed Death Benefit: S$500,000
• Aviva: Aviva MyWholeLifePlan Review
  • Annual Premium: S$ 2,760
  • Coverage multiplier: 4 times
  • Guaranteed Death Benefit: S$400,000
• Manulife: Manulife LifeReady Review
  • Annual Premium: S$ 2,617
  • Coverage multiplier: 4 times
  • Guaranteed Death Benefit: S$500,000

(All reviews open in new window)

For coverage using a Whole Life Plan (Manulife LifeReady selected based on lowest premium) 

For around S$ 220 monthly, you are able to have Death, Early Critical Illness, Critical Illness, Total and Permanent Disability and Terminal Illness coverage.  Not only that, as a participating policy, the Aviva MyWholeLifePan also accumulates cash value over time. The total premium you have paid stands at S$65,434 over a 25 years period, with lifetime coverage.

Base on *compareFIRST, you should be looking at a surrender value of S$48,838 to S$73,497 according to the lower and higher rates of returns respectively on the 30th policy year. This refers to the estimated cash value you are expected to receive upon surrendering of your policy. Should you choose to continue with the policy, the surrender value will only increase as you continue to be covered by the policy for insurance coverage.

By starting early, the whole life policy accumulates cash values which could be even higher than the total premium you paid over the years. Hence, even if none of the insured events occurs, you may still surrender the policy for its cash value in the later years.

Read About: Whole Life Policy: How does it work?

Read About: 3 best Whole Life insurance policies in Singapore (updated Nov 2023)

Option 2: Coverage via Investment Linked Policy (ILP)

An Investment Linked Policy is a life insurance plan that is made up of 2 components: An Insurance policy which provides you protection, and an Investment portion which gives the policy its cash value. The cash value of the policy comes from the investment units in the Unit Trust Fund(s) you invested into. The level of coverage provided by Investment Linked Policy is similar to a Whole Life Policy.

We are unable to provide any statistics from compareFIRST as the output generated are only product names by alphabetical order (A-Z). Hence, without preferences and in alphabetical order, here are some of the popular Investment Linked Policy available in Singapore:

AIA: AIA Family First Protect Review

Aviva: Aviva MyLifeInvest Review

AXA: AXA Pulsar Review, AXA Optimus Review

Great Eastern: Great Eastern SmartInvest Review

Manulife: Manulink FlexiProtect Review

NTUC Income: NTUC Income Vivalink Review

Prudential: Prudential Prulink Supergrowth Cash Review

Editor note on Investment Linked Policy: Unlike a Whole Life Policy, there is no Guaranteed surrender value in an ILP. The surrender values are based on the actual underlying investment performance of the Unit Trust and Unit Trust Sub-funds.

Read About: Investment Linked Policy: How does it work?

Read About: 3 best Investment Linked Policy in Singapore (updated Oct 2023)

Your Second Insurance Policy (and third, fourth, and there on)

Now that a part of your protection coverage is in place, you may start to seek out other types of insurance policies depending on your financial goals and objectives. Look at our Insurance Guides to understand more about the options available.

If you are seeking higher coverage

Look for a Term Policy, another Whole Life Policy or Investment Linked Policy to cover the shortfall in your insurance coverage.

A Term Policy is a type of life insurance with high health and protection coverage. The default coverage is for Death and Terminal Illness. To enhance the coverage offered by a Term Insurance, riders for additional insurable events can be included in the main Term Insurance policy.

Such insurable events include:

• Total and Permanent Disability (TPD)
• Early Critical Illness (ECI)
• Critical Illness (CI)

Term Policy typically offers the highest coverage for the premium paid, at the drawback of the policy not accumulating any cash value over time.

Editor note: In the event that the claim payout for an insured event being the same as the main policy sum assured, the policy will fully expire.

Read About: Term Policy: How does it work?

If you are seeking higher financial returns

Now is the time to consider that Endowment Policy if you have goals to accumulate a specific amount of funds in a specific number of years. Options are available for Limited premium and Regular premium with flexibility for partial withdrawal. For the purpose of higher financial returns, we compare the Endowment policies without withdrawal options.

Limited Term Premium (Premium term of 15 years, Maturity at the end of 15th year)

Sorting the results from *compareFirst.sg based on the following: Female, Age 25, Non-smoker, 11-15 Premium Term, Highest Guaranteed Payout.

The top 3 products in order of search results:

• Aviva: Aviva MySavingsPlan Review
  • Total Premium Paid: S$ 37,417
  • Total Guaranteed Payout: S$ 39,500
  • Total Potential Payout: S$ 46,956
• Manulife: Manulife Ready Payout Plus Review
  • Total Premium Paid: S$ 37,614
  • Total Guaranteed Payout: S$ 36,354
  • Total Potential Payout: S$ 42,396
• Great Eastern: Great Eastern Flexi Endowment Review
  • Total Premium Paid: S$ 37,501
  • Total Guaranteed Payout: S$ 32,943
  • Total Potential Payout: S$ 46,288

(All reviews open in new window)

Read About: 3 best savings endowment plans in Singapore for lifetime wealth accumulation.

For wealth accumulation by regular saving (Aviva MySavingsPlan selected based on Highest Guaranteed and Potential Payout)

For around S$ 210 monthly or S$2,495 year, you would have saved S$ 37,417 over a 15 years period. Base on *compareFIRST, you should be looking at a maturity value of S$41,783 to S$46,956  according to the lower and higher rates of returns respectively.

Editor note: The total guaranteed payout and the potential payout can be even higher if the years of premium payment can be shortened or the duration to maturity can be increased.

Contact us for a personalised quote based on your saving objective and goals.

If you are seeking even higher financial returns

If the returns above does not satisfy you, it is time to look into building your Investment Portfolio. Refer to our various investing guides as the related contents will be off this topic of starting out with financial planning. You may also be exposed to higher financial risk and it is important to fully understand your risk profile and product suitability.

Alternatively, an Investment Linked Policy with minimum coverage can allow you to accumulate wealth at a higher rate.

Editor note: We like AXA Pulsar which base plan only has any 105% insurance coverage, allowing your premium to be focused on wealth generation. Similarly, Aviva MyLifeInvest allows you to reduced insurance coverage to zero after a period of 12 years.

Both mentioned investment-linked policies are covered in our 3 best investment-linked policy in Singapore for wealth accumulation.

When is the best time to act on financial planning?

Like the saying, “The best time to plant a tree is ten years ago, and the second best time is now“.  The best time to start working on your financial planning has passed, so make the best of now. Understand that the effects of compounding returns work best the younger you are.

Read About: Missing out on compound returns?

Lastly, cutting back on your coffee fix or regular spending habit may cost you more than you think.

 

Ready to start working on your finances?

Talk to your financial adviser or let InterestGuru.sg work for you.

Contact us and let our partnered licensed financial adviser work out a suitable financial portfolio based on your profile.

 

*compareFIRST – comparefirst.sg is a joint effort by the Consumers Association of Singapore (CASE), the Monetary Authority of Singapore (MAS), the Life Insurance Association Singapore (LIA) and MoneySENSE to enable consumers to more easily compare and find life insurance products most suited to their financial objectives. Click on links to go directly to the relevant pages.