Parenthood has a way of jolting people like nothing else can. You are responsible for another person’s life, and you only want the best for this little person, who also happens to be adorable.
You also need to start picking up whole new spectrum of knowledge. First-time parents need to learn how to care for and feed their newborn, along with a whole other list of do’s and don’ts.
One area parents should not neglect at this crucial time is to start planning for their newborn child’s future. Parents need to consider what types of child insurance they should be considering for their child.
Because there are so many different types of child insurance in the market, it can get really confusing and daunting trying to do this. Frankly speaking, most of us don’t even know what insurance policies we need, let alone how we should plan for our child’s long-term future.
In this article, we hope to help shed some light on some of the more important insurance policies you may want to consider getting for your child.
Why You Should Get Child Insurance
Your financial advisor may give you a variety of different reasons but we will just narrow it down to one important reason – insurability.
Since a newborn child would most likely have no history of pre-existing conditions or illnesses, the child would be able to obtain full coverage with no exclusions. In the unfortunate event that an illness or condition develops at a young age while growing up, the insurance company will be obliged to provide coverage for as long as the policy is in effect.
That is why it is always important to get child insurance early. By getting coverage in place early, you ensure that you child’s medical needs are covered, regardless of what is to happen in the future.
Buying Health Insurance
The first type of insurance to consider would be health insurance. In particular, we like to highlight getting a hospitalisation plan. In our opinion, a hospitalisation plan is one of the “must-haves” that every adult and child should get.
While Medishield Life provides basic coverage at B1 and C Class wards at public hospital, you will need a private integrated shield plan to extend the coverage to higher-class wards or private hospitals.
The good thing here is that parents can use their own Medisave funds to pay for the private integrated shield plans that they purchase for their children. You can also opt for a rider (recommended), which would help cover for any excess hospitalisation charges that the shield plan does not cover.
By getting a hospitalisation plan early, you ensure that your child will be covered for any future illnesses or conditions.
Life insurance is a type of insurance policy that provides a payout in the event of death or permanent disability to the insured person. If you have read some of our previous article on life insurance, you would know by now that we highly encourage anyone with dependants to get some life insurance coverage.
Life insurance works in the same way as health insurance in the sense that having any prior or existing illnesses or health problems could make you uninsurable, or would require you to pay a significantly higher premium for coverage. When you buy life insurance for your child, the purpose isn’t just about covering him for today, but to ensure that he has coverage for the future as well.
Term Or Whole Life Insurance For A Child?
When it comes to a child, a whole life insurance may be the better option compared to a term insurance. Term insurance only provides coverage for the duration of the term period while whole life insurance provides coverage for life.
Say for example if you buy a 30-year term insurance for your child, you would need to pay 30 years for coverage. At the age of 30, your child would need to buy a new term plan for future coverage. If he or she has health issues, they may not be able to get further coverage, even if they are willing to pay for it.
In contrast, for whole life insurance, the coverage will be in effect for life, or until you surrender the policy (not advisable). Most whole life insurance work via a limited pay policy. For example, you could be paying insurance premiums for the 1st 20 years of the policy. Thereafter, payment stops but insurance coverage is in effect for life.
We did a simple price comparison based on information we found online. Interestingly, this was what we found.
|Term Insurance||Whole Life|
|Death Benefit Payout||$200,000||$175,000|
|Age When Coverage Is Bought||40||0|
|Age Till Coverage Is Provided||70||Death Benefit payout of $175,000 till age 70
After age 70, guaranteed amount Is $50,000
|Years of Coverage||30||Life|
|Years Required To Be Paid For Premiums||30||20|
|Total Premium Paid||$26,820||$18,200|
Intuitively, some people may expect a whole life insurance policy to be more costly, especially since it also contains a cash value component. Surprisingly though, it is actually cheaper to buy whole life insurance for a child for the first 20 years of their life, and to have coverage in effect for the future, then to buy a term insurance policy when one is much older.
Getting More Information From DIY Insurance
Do-it-your way (DIYInsurance) is a comparison web portal developed by Providend.
It recently launched specially tailored packages for children. They have the Child Protection Plan ($1,148 per year, payable for 20 years), which includes a whole life policy and a hospitalisation plan. Under this plan, parents would need to pay 20 years for a whole life policy, which would guarantee their child a life insurance death benefit of $175,000 till the age of 70, and $50,000 thereafter. As with all whole life policy, it also contains a cash value component if the plan is surrendered.
They also have an Education Savings Plan ($204 per month, payable for 20 years), which is tailored to provide timely payouts to your child at key stages during his or her education journey.
Both these plans include a waiver, which means that the plan will automatically be paid for in the event of death of the caregiver.
As always, DIYInsurance automatically gives you a 30% commission rebates whenever you buy a product (or package) through their platform. This means you can enjoy greater cost savings with DIYInsurance as compared to buying directly from a sales agent.
Read Also: Understanding The Various Types Of Insurance
One of the main reasons why we like DIYInsurance is because their staff are salaried rather than commission-based employees. This is also the reason why the company believes in educating people as much as possible through their website, and letting them understand and decide for themselves what they need, rather than to push products to them.
DIYInsurance does not have any special tie-ups with any insurance companies. They simply curate and recommend products to you based purely on the value you are getting and the price you are paying. This removes any conflicts of interest that are commonly associated with the sales insurance products.
Their DIYInsurance package for children, which you can find out more on their website, is a good reminder to us that insurance companies can and should do their part to educate their potential customers through the provision of transparent information, and letting them understand for themselves on what they need, rather than to push products through to them.