Safeguard the Financial Security of Yourself and Your Family

Make Good Use of Insurance Benefits to Realize Long-term Asset Growth

1 April 2017

 

Safeguard the Financial Security of Yourself and Your Family

Make Good Use of Insurance Benefit to Realize Long-term Asset Growth

Our Expert

Ms. Rachel Wong

Assistant Associate Director of Convoy Financial Services Limited

Safeguard the Financial Security of Yourself and Your Family

Make Good Use of Insurance Benefits to Realize Long-term Asset Growth

Candy has to take care of her father alone after the death of her mother. Realizing that she is the only breadwinner in the family, she decides to review her financial plan and the health protection of her father and her own.

Candy's Financial Profile

Age 39
Occupation Executive Secretary
Marital Status Single
Family Member Father:63 years old
Mother:just passed away due to heart attack
Monthly Income HK$40,000(net of MPF)
Monthly Household Expenditure Family Expenses:HK$6,000
Insurance:HK$1,410
Mortgage:HK$8,400
Living Expenses:HK$10,000
Monthly Surplus HK$14,190
Assets Property: current value of HK$4,100,000, including HK$1,900,000 mortgage
Cash savings:HK$200,000
Stocks:HK$80,000
MPF:HK$202,000
Others:death benefit of HK$2,000,000 from her mother’s insurance policy
Risk tolerance Level Medium to high
Financial Goals/Concerns Achieve the following goals using the insurance benefits:
1. Review individual insurance coverage
2. A basic health insurance plan for her father to cover the future medical expenses

Determine the Family Expenses First

Though Candy received the death benefit of HK$2 million, it may not be enough to cover her living expenses based on the “Personal Needs Approach”.

It is estimated that Candy will need approximately HK$7.83 million to support her father for another 20 years and to cover the monthly household expenses. After deducting her realizable assets of HK$3.5 million (i.e. stocks, bonds and estate), there is still a shortfall of HK$4.36 million.

I would suggest Candy to have a term life insurance with no saving elements which will offer protection up to age 80 with a contribution period of just 20 years. She will only need to pay the monthly premium of around HK$815, so she can cover this extra expense with part of her monthly surplus.

Avoid Relying Solely on Employee Benefits

Currently, Candy enjoys the health insurance offered by her company. The protection, however, will be affected if she changes her job or the company cuts down its employee benefits in response to the changing business environment. It will be wise for Candy to have a personal basic health insurance plan to mitigate the risk.

In Candy’s case, she can choose a basic hospital plan with monthly premium of around HK$260, or HK$3,000 per year, and add other additional benefits according to her needs, such as outpatient and dental coverage.

Offer the Senior Early Protection with a Medical Plan

Candy is also concerned for the health protection of her father as he is 63 years old now and does not have any insurance coverage. Yet most of the medical insurance plans on the market have an age limit of 59 to 64 years old, and the premium levels will be adjusted according to the insured’s age and health conditions at the time of application.

Most of the plans guarantee policy renewal and offer coverage of up to age 100 or even lifelong protection, which means that the insured can still enjoy medical protection after reaching age 100.

Those over 65 will have limited choices. Assuming that Candy’s father is healthy, he can get the basic medical protection for around HK$600 per month (or HK$6,700 per year). As the premiums will be adjusted with age and higher medical costs, Candy and her father should maintain a sufficient cash reserve for the higher premiums in the future.

Invest Your Money Smartly

Last but not least, Candy may invest the policy benefit in stable bond issuers or bond funds for the monthly dividends that serve as a new source of income and for the purpose of diversification. Bond funds can be redeemed anytime and have higher liquidity. A wide range of asset classes also allow investors to choose those that best meet their risk tolerance levels.

For example, assuming that the annual rate of return is 4-9%, Candy can enjoy a return of HK$80,000 to HK$180,000 on the capital of HK$2 million, which can cover the extra insurance costs.

Tips

As I reviewed Candy’s policies, I noticed that one of those still named her mother as the beneficiary. To avoid this, policy holders should list out all policies they have and review them regularly, especially when their marital or family status has changed. They should also list out the respective beneficiaries to ensure that they are well protected.

Disclaimer: The above information is provided for reference only, and does not constitute any investment advice or offer. You shall not make any investment decision relying on this article.​

The author has endeavoured to ensure the accuracy and reliability of all information (including data) provided, but the information shall not be interpreted as a guideline for consumers. The author and Convoy accepts no responsibility or liability for any loss or damages suffered by any person due to any inaccuracy or omission in respect of any information provided in the articleDifferent plans have respective terms and conditions which are stated by different product providers. Please refer to the respective principal brochures for detailed terms and conditions.