| The Approaches to Solutions |
First, a word or two about classification of topics under financial planning before starting on the journey here.
Financial planning has so many facets that are interrelated. Because of this, it is hard to classify these into clear and distinct segments. And to add to the confusion, various financial planning words are often used interchangeably.
Take for example, risk planning. Risk is involved in every aspect of financial planning. When one buys an asset, there is the worry of losing it through fire or losing its value. When one plans retirement, there is the risk that circumstances change such that there is a forced upon early retirement. In fact, risk is involved in every aspect of life. But here we do not want to deal with every minor or uncommon risk so we focus on the central ones for each life stage.
So the classification here, while not the final word, more or less reflects the main focus for financial planning for each stage of one's life, as follows:| 1. | Risk planning | ||
| 2. | Wealth planning | ||
| 3. | Tax planning | ||
| 4. | Estate planning |
For the responsibility stage (one of the various stages in life described earlier), risk planning is most important because wealth has not been built up yet, so any loss of asset or loss in value of asset is devastating. When wealth is substantial, even the risk of a loss of an asset is bearable. So the write up here is on insurance per se, not the investment elements of insurance.
For the accumulation stage, wealth planning is most important since the main aim is to increase wealth. At this stage, planning may be further looked at in terms of the different objectives because each objective may require a different approach in terms of strategy, investment instruments and risk/reward expectations. Thus, this section is further broken into sub-topics for each type of fund objective, namely, education planning, retirement planning, contingency planning and others.
When significant wealth has been accumulated, tax planning becomes a major preoccupation because a bite-sized savings in tax is superior to any other investment return considering that tax-savings do not involve any risk of capital.
For the enjoyment stage, when retirement is calling, estate planning is a must if one wants to take care of the family before the final curtain.
1. | What is the difference between participating and non-participating whole life? |
A: | A participating (or called with profits) shares with the insurer the profit actuarially determined to be generated from the designated insurance pool arising from a more favourable experience than assumed in the pricing of the product. Such share of profit is not guaranteed and is declared as bonus or dividend. |
2. | If I want to terminate my life policy later, what can I get? |
A: | You get what is called the cash value or surrender value. This is the amount that is left after putting aside, from your premium payments, the cost of commission, cost of insurance, overheads and appropriations for contingency and profit. There is usually no cash value in the first year of a life policy but after that cash value accumulates together with interest and/or bonus declarations. |
3. | Can the sales illustration presented to me by the insurance agent be relied on? |
A: | The sales illustration is simply what it is - an illustration for sales. The numbers you see in there are projections based on assumptions that may or may not happen and if there is a shortfall in accumulation of cash value because assumptions are out, there is no obligation to make good such shortfall, unless categorically stated as a guaranteed amount, be it sum assured, premium or cash value. In considering such sales illustrations, it is always better to be conservative. |
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