Personal Finance Matters Insurance and your newborn child Parents should insure themselves before they buy policies for their children, says Eddy Cheong. By Eddy Cheong   The trend now is for parents to buy life insurance and endowment policies for their children, but before you sign on the dotted line, you should consider if this is a savvy financial decision. Insurance 101 From a financial viewpoint, many would agree that a child has only financial liabilities – diapers, childcare, toys, medicine and education are expenses that come with bringing up a child. How about endowment policies for education? Currently the cost of a 4-year local university is about $58,600 per child (see table below). With inflation, this figure will become $137,501 in 20 years’ time. A competitive 20-year endowment will cost about $4,427 per annum to meet the university cost for one child! What parents should consider Firstly, they should purchase a good hospital and surgical (H&S) plan for their children. Experienced parents will know that children fall sick and are prone to accidents, and bills can run up into thousands of dollars per hospitalisation. Don’t forget to apply the MediShield or the private ‘shield’ scheme for your children too. The combination of shield scheme and H&S plan will help to defray most of your hospital bill. Secondly, parents should make sure they have sufficient insurance. I have seen cases where children have more insurance than their parents, but who will provide food if the breadwinner dies prematurely? Consider Investing To accumulate sufficient educational funds, parents should assume some investment risk to reap better returns on their capital. Based on a 6% annualised return, only $3,526 needs to be put aside per annum for 20 years to provide for one child’s education. Lastly, parents should have a will executed and CPF properly nominated to ensure that their children will be taken care of by guardian(s) of their choice and their estate managed by intended trustees. As the saying goes, insurance is one thing where parents’ needs come first before the children’s. Eddy Cheong is the insurance specialist with independent financial advisory company Providend.