Planning your finances for future generations

Many parents envision a fulfilling life for their children. In order to provide the best they can, they seek to transfer their wealth down to their children, so that they will have sufficient funds to live comfortably.

Breadwinners also need to plan for their families in the event that something unfortunate happens to them. If they do not have any financial plans in place to ensure that their loved ones are protected against unforeseen circumstances, the sudden loss of the breadwinner may impact the family’s financial well-being, resulting in them having little funds to pay for items such as their children’s education, or to maintain the lifestyle that they are used to.

There are many options available for those who want to secure the future of their loved ones. While whole life insurance policies are a common option, let’s also take a look at a product with more flexible options and the opportunity to reap positive returns in a well-performing market.

How an investment-linked policy can help prepare for the future

An investment-linked policy comprises an investment component and an insurance component, both of which have varying proportions depending on how the policy is structured. ILPs typically offer insurance benefits, such as the death benefit, which pays out a lump sum upon the passing of the life assured.

The common factor among all ILPs is that, as the policyholder, you get to choose which ILP sub-funds to invest in, subject to your risk profile, as part of the ILP’s investment component. These ILP sub-funds cover a range of asset classes, from fixed income, money market funds to equity.

Returns, however, are not guaranteed. Some ILPs offer partial withdrawals and bonuses, the latter of which boost overall returns in the long run. In summary, an ILP takes on more investment risks than a standalone insurance product.

But when it comes to planning your family’s finances, the ILP with a life replacement option (LRO) can ensure a seamless transfer of your policy to your loved ones.

The goal of an LRO is to extend the policy beyond the life of the original life assured. It ensures that the policy provides for your loved ones, by enabling the original policyholder to transfer the policy to somebody else.

If the LRO is exercised, the policy does not cease upon the original life assured’s death. Instead of claiming a death benefit, which is a one-time lump sum payout, your family can continue to tap on the policy’s returns.

Sometimes, parents need funds to pay for certain milestone events, such as their child’s first semester at university. They can choose to make partial withdrawals on their policy in order to do so.

How does one transfer one’s policy?

There are two parts to transfer one’s policy: the first part involves the naming of a new life assured by the original policyholder; and the second part, assigning a new policyholder, so that the policy can be transferred.

The first part is straightforward: The new life assured needs to be the original policyholder’s spouse or child. The child must be below the age of 18. So upon exercise of the LRO, his or her spouse or child will be the new insured party.

The next part explains the transfer of the policy to a new policyholder.

In this process, the original policyholder assigns an individual who has an insurable interest on the life assured, to be the replacement policyholder. In most cases, they nominate their spouse. After the assignment of the policy, the new policyholder will maintain the policy by continuing to pay its premiums. By nominating a new policyholder, the family can continue to reap the investment returns of the ILP after the passing of the original policyholder.

Do take note that the LRO can only be exercised when the policyholder is still alive.

How does AXA’s Wealth Accelerate (AWA) wealth transfer work?

AWA is an ILP that offers the option to transfer your policy to a chosen member of your family, with a product feature called Life Replacement Option (LRO).

AWA offers two free partial withdrawals, after three to five years, depending on the policy’s minimum investment period (MIP).

How does LRO work — an illustration:

Mark is aged 30 and a non-smoker. He is married and has a son called Leo. He purchases AWA to build a nest egg and to live a fulfilling life after retirement with his wife, Joan.

As the policyholder and life assured, Mark chooses an MIP of 20 years and contributes an annual premium of $12,000. The AWA’s illustrated investment returns typically range from 4 to 8 per cent.

At age 39, Mark is diagnosed with colon cancer. He can choose to exercise the LRO to change the new Life Assured to his son Leo. At the same time, he nominates his wife Joan to take over as the replacement policyholder. Under the change, Leo’s life is insured, and Joan continues to pay the premiums till the end of the MIP.

At the end of the MIP of 20 years, Mark’s total account value is estimated to be worth $444,981, based on an 8 per cent illustrated investment return; or $288,878, based on a 4 per cent illustrated investment return.

As a result of Mark exercising the LRO, Joan now has access to a potential accumulated nest egg. She is also able to make regular withdrawals after the end of the MIP to supplement her retirement income.

If Mark does not exercise the LRO and passes away at age 40, the death benefit will be paid out and the policy will terminate. Mark’s family will not be able to enjoy further wealth accumulation. The death benefit will only come up to $194,403 based on an 8 per cent illustrated return, or just $155,932 based on a 4 per cent illustrated return.

Mark names Leo as the Life Assured, which also protects Leo through to the family’s second generation. So if Leo suffers a terminal illness or passes on, Mark can rest easy knowing that Leo is protected.

Planning one’s finances is a must for everyone. This is more apparent for parents, who need to ensure that their loved ones are well-protected. But it is never too late to think about your family’s financial needs. With its flexibility in switching sub-funds, the opportunity to make withdrawals, and an option to transfer a policy to another member of the family, an ILP could assist you in reaching your family’s financial goals.

You can find out more about AXA Wealth Accelerate here.

This plan is underwritten by AXA Insurance Pte Ltd (“AXA”). This advertisement is not a contract of insurance and not for use outside Singapore. The precise terms and conditions are specified in the policy contract. This advertisement is for your information only and does not have any regard to your specific investment objectives, financial situation or particular needs. You may wish to seek advice from a financial consultant before making a commitment to buy the product, and if you choose not to seek advice, you should consider whether the product is suitable for you. Buying a life insurance policy is a long-term commitment. An early termination usually involves high costs and the surrender value payable may be less than the total premiums paid. Buying an Investment-Linked Policy (“ILP”) comes with investment risks, as the value of units in the ILP Sub-fund(s) and income accruing to the units, if any, may rise or fall, which may lead to possible loss of the principal amount invested. A Product Summary with details on product features and charges and a Product Highlights Sheet in relation to the ILP Sub-fund(s) are available and may be obtained from a financial consultant representing AXA. You should read them before deciding whether to subscribe for units in the ILP Sub-fund(s). Protected up to specified limits by SDIC. This advertisement has not been reviewed by the Monetary Authority of Singapore. All information is correct as of 23 January 2020.

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