As a Financial Adviser, I get to witness the joys and anxieties of many young parents when their first babies are born. They usually find it hard to cater to the financial needs of both their newborn and themselves. They are aware of the need to plan but may be confused by the myriad of insurance and investment plans available in the market. As a result, they may get their priorities wrong especially when they have budget constrains during the planning process.
I would like to propose to new parents the following order of priorities when there is a newborn in the family.
Priority no. 1: Reviewing Personal Financial Plan
i) Risk Management
Having adequate health, life and disability income insurance coverage personally should be the topmost priority of new parents. This will ensure that their families will be well taken care of in the event of a tragedy or debilitating illness. One low cost option of getting the necessary life cover is via a “Decreasing Term Insurance” of which the Sum Assured decreases yearly at a certain rate to zero cover on maturity.
| $500k Decreasing Term x 25 years (Death and TPD) – Mthly Premium | |||
| Gender / Age | Company N | Company V | Company X |
| Male (30 yo) | $37.00 | $30.75 (Pay 23 yrs) | $33.68 (Pay 22 yrs) |
| Female (30 yo) | $25.00 | $23.95 (Pay 23 yrs) | $31.93 (Pay 22 yrs) |
ii) Cash-flow Management
Likely additional expenses such as employing a domestic worker, acquiring a car or even food and medical expenses of the child can be financially stressful for the parents. They should evaluate how their cash-flow will be affected by the baby and draw a family budgeting plan to determine how much they can use to plan for the child.
iii) Wealth Distribution
Under the Intestate Succession Act, where the deceased was married without children at the time of death, 50% of the asset will be passed to the spouse and 50% shared equally between both parents. However, the birth of the first child to a married couple will result in the couple’s parents’ portion of the asset to be passed on to their newborn child. This may not be the desired outcome of someone who has dependent parents.
The parents can consider writing a Will to name their beneficiaries, guardians and executors instead of letting the court decides.
| How a newborn affects your asset distribution plan if you die intestate | |
| Married without Children | Spouse 50% / Parents 50% equal share |
| Married with Children | Spouse 50% / Children 50% equal share |
(To be Continued…on Priorities 2 to 4)
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