Resilience to a Retirement Portfolio for Today and Tomorrow

By Adrian Tong, CFP®

Insurers are still stuck with 3G, and how you can make it 4G yourself.

3G Plans had been rather common in the financial market for years. And unlike Telos which are slowly moving to 5G, Insurers are likely sucked with 3G for the next few decades. So let’s try to understand such plans.

First, what kind of plan is it? It’s basically an annuity plan with a death benefit. So this is what happens:

1: The client pays a premium, sometimes a single payment, but usually around 5~8 years. 2: The plan next uses a few years to invest the money, before it starts paying a stream of yearly income to the client. This happens anywhere from the 8th to the 12th year of the policy. 3: The policy pays the annual stream of income until the client dies, which than pays a sum assured, which is usually around the same as the total premium paid, to the client’s estate.

So why such plans are called 3G plans? Because it can theoretically benefits up to three generations. First, the client can buy the plan on his or her child’s life. Next, at the year the plans starts paying out the income, the client can starts collecting it for his or her retirement. Upon the client’s decease, the child, whom is the life assured, will continue receive the income until his or her decease, upon which, a sum of money would be paid to the grandchildren of the client. And hence, they are called 3-generations plans. They can either be in SGD or USD.

So how can one make this game a 4G plan instead of just 3G?

The client can wait for his or her child to get married, and produce an offspring or two, and buy said plan on that grandchildren’s life. Hence, the client can received the income first, before passing it to the children, whom would than passed on to the grandchildren, and upon the decease of the grandchildren, the sum assured will be paid to the great grandchildren, thus making it 4G.

So, how to choose which of these plans to get? First, decide between USD or SGD plans. Next, get a quote from the different insurers and decide which one can potentially give higher payouts based on the quote. It’s that simple.

So what are the alternatives to these plans?

Well, such plans are designed to be management free, they allows a hands off approach for both retirement and legacy together for the next 2 or 3 generations. However, due to such a two in one feature, they are not known to have very attractive returns. For those whom don’t mind spending more time to manage their money, there are a few hands on approach to achieve the same results.

First, one can simply buy a normal wholelife insurance policy on their children or grandchildren’s life, for the benefits of the next in line generation. Next, they can use the remaining money to invest into income producing assets, such as REITS, Blue Chip Stocks, Income Focus Unit Trusts, or into the property market. This provides more liquidity and possible better returns than the 3G Plans.

So should one purchase such a plan for their retirement and legacy planning? Well, it all depends on their needs. Such plans are good for those whom prefer hands of approach, and would like to be assured of a stable stream of income from the insurer, instead of taking market risk. They can also be used as a diversification for those with a more aggressive portfolio, it is best for one to look at such a plan from a bird’s eye view and how it can complementary one’s existing arrangements, instead of relying on such plans as a comprehensive solution.

Finally, one can also consider using a Will or Trust to complement such plans. For example, the ownership of the plan can be given to a family trust, with the insured being the beneficiaries of the Trust, this can prevent the children from surrendering the policy for a lump sum of money upon the client’s decease. The client can also use a will to leave some part of his or her estate into the purchase of such polices for his or her youngest descendants upon his or her decrease. There are many ways to play with such plans; however it is advisable to consult a CFP and a Lawyer for such complex arrangements.