Financial stability and independence are goals that many wish to achieve, but this requires financial planning and consistent effort to achieve. The financial plan should include plans to protect and accumulate wealth, and this should be reviewed regularly to ensure that you are on the right track. Though these two terms – “wealth protection” and “wealth accumulation” – might be similar, they are in fact different and should not be used interchangeably with the other.
Wealth protection VS wealth accumulation
Wealth protection, or wealth preservation, refers to the method of safeguarding your financial assets while growing them. Products that can assist in wealth protection include medical insurances, life insurances, and other insurances which insure you against personal accidents, disability, and critical illnesses. These wealth protection products ensure that your wealth will be guarded in the long run. These products will be further discussed in detail in the latter part of the article.
On the other hand, wealth accumulation refers to the method to grow your financial assets through investments, endowment, annuity, and other methods to grow your capital. This method is dependent on your risk appetite and your preferred time horizon. Though it is riskier as compared to wealth protection, it will likely result in an increase in your financial assets.
In order to achieve the goals of financial stability and independence, wealth protection and wealth accumulation will need to take place at the same time. During your earlier years, you might be focused on growing your wealth; and during the later years, you might be focused on the protection aspect. Depending on your age, you will have to come up with different strategies that are the most suitable for your current financial focus.
Strategies and products for wealth protection
A method to protect your wealth is to purchase insurance and invest in low-risk products. The main insurance coverage that individuals are recommended to get for health, personal accident, and critical illness. This protects you and your family from worrying about finances in the event of a misfortune. If you have the financial capability, it is also recommended to purchase term or whole life insurance, and one against disability. The usage and recommended coverage for each of the top 5 insurances to get are listed below.
Health insurance covers hospitalisation and surgical bills, and outpatient care. This is additional coverage to MediShield Life, a compulsory scheme for all Singapore Citizens and Permanent Residents, and it covers hospital bills from public hospitals, up to the B2 wards.
Recommended coverage: Private hospitals and/or A-wards in a public hospital
Personal accident insurance
Accidental medical expenses will be covered by personal accident insurance. This includes breaking a leg while playing basketball, food poisoning, insect bites, and more.
Recommended coverage: Based on outpatient expenses incurred.
Critical Illness (CI) insurance
In the event of critical illness, a sum will be paid out to the insured party. The list of the 37 critical illnesses covered includes cancer, stroke, Parkinson’s disease, and more. The entire list can be found here. It is recommended to get CI insurance as the chances of being diagnosed with cancer is 1 in every 4 to 5 Singaporeans.
Recommended coverage: Different policies have a different payout rates – some insurance companies give a lump sum amount at a later stage of CI, some payout during the earlier stages of the illness, and others provide multiple payouts at different stages. The recommended CI payout by Life Insurance Association is $316,000.
Term/whole life insurance
There are two main types of life insurance – term life insurance and whole life insurance. Term life insurance covers the amount of sum assured, for a specific period, or up to a specific age. If the term life insurance is surrendered before the end of the policy, no cash will be paid out since the entire amount paid goes into the life coverage.
Whole life insurance is a mix of term life insurance, but for your entire life, with a savings portion. Upon the end of life, the family of the insured individual will receive the sum assured and any additional amount from bonuses. When this whole life insurance policy is surrendered before the end of the period, the insurance company will pay out the guaranteed cash value + non-guaranteed value.
Comparing the two types of life insurance, term insurance has a cheaper premium than whole life insurance, but the latter has more extensive coverage and there is a cash value return when the policy is surrendered before its due date.
Recommended coverage: Annual income x 5 or any existing liabilities
Disability insurance is important if you are the sole breadwinner in the family. This provides a monthly payout for the amount of income lost due to the inability to work.
Recommended coverage: According to your income or at least $3,000 a month.
Strategies and products for wealth accumulation
Wealth accumulation requires patience and a long-term plan. It is rarely possible to grow your wealth within a couple of days, though not entirely impossible. Products that will help in the accumulation of wealth include endowment, annuity, and investment.
Before jumping straight into an investment, be sure to do your own diligence to look into the broker, company, and stocks that you are investing with or in. This prevents you from making major losses. Additionally, when choosing investment products, ensure that the fees are not too high as they will eat into your returns in the long run.
Wealth protection and wealth accumulation have to go hand-in-hand with each other in order to achieve your financial goals. Ultimately, in this age and time where individuals want to see instantaneous results, it is important to be patient as it takes time for results to show.
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