Becoming parents is a happy occasion. Sometimes, we get so excited to usher in a new family member we want to buy nothing but the best for them. So in the area of financial planning, what exactly do we need to consider for our newborn?

1 The cost of pregnancy

The first step to child planning is giving birth. So it's probably fair to first consider if you are going for the private or government hospital route in child birth. This cost includes prenatal check ups, prenatal test, baby delivery, hospitalisation stay and post natal care. To get a rough idea of these costs, you can check out this article written by Dollars and Sense.

What I do want to cover though is the common concerns parents might have in terms of pregnancy complications. This involves 2 parties: the mother and the baby. As much as I wish to say that prenatal insurance would be a good protection against such costs, it's in my opinion very insufficient.

Most prenatal insurance covers for pregnancy complications, congenital illnesses and hospitalisation income benefit for mom and baby if certain hospitalisation complication conditions are met. However, the maximum coverage in the market is $30,000 which is grossly insufficient for a prolonged hospitalisation stay in private hospitals especially if one enters the Intensive Care Unit.

It's worth noting that Medishield Life and Integrated Shield plans typically offers coverage for certain listed pregnancy complications (subject to claim limits and waiting periods). Most insurers do not cover for complications arising from the newborn.

In that case, should anyone bother with maternity insurance?

Maternity insurance comes in 2 forms. A standalone version that covers mainly pregnancy complications and congenital illnesses (up to the maximum sum assured) and a bundled version that enables the baby to attain life insurance or critical illness coverage without medical underwriting after he or she is born up to a capped period of time. In recent years, one insurer also offers the option to buy a hospitalisation coverage for the baby upon birth without medical underwriting.

This benefit is often underestimated! Firstly, we can't buy hospitalisation coverage for our newborn before they are born. Upon birth, common issues that might result in a child getting postponed from hospitalisation coverage includes being severely underweight due to premature birth, jaundice and other potential health issues before they apply for insurance. Depending on severity, the baby's coverage might run the risk of getting postponed or in the worse case scenario get declined from coverage.

2 Insurability

In my opinion, the guaranteed insurability of the baby is actually the most valuable component of prenatal insurance. This is because of the risk a baby may not be able to get full insurance coverage or worse not be able to get any form of coverage if some unexpected health issues is discovered at birth or before any insurance is bought. It sounds unlikely to happen. I get it, most babies are born healthy.

Somehow a lot of parents don't seem to register the possibility that insurers might reject business. You only can buy insurance in good health! Are there people in Singapore who looks perfectly normal who cannot buy insurance at all due to a health defect discovered at birth? Yes.

Early coverage of life and critical illness can go a long way as a gift from parent to child. In my course of work, I've met many young adults who have medical conditions before they bought insurance for themselves. These medical conditions may result in them getting loading or exclusions in their coverage. The luckier ones whose parents bought life insurances with critical illness coverage for them when they were young and healthy had those conditions fully covered through the insurances bought by their parents. If those conditions eventually become critical illnesses, the plans bought by their parents would be the only insurance pay-outs they would have during their adulthood.

Who sacrifices when the baby is majorly ill?

Protecting your baby for critical illness is often underestimated too. Parents often forget that someone needs to sacrifice to look after the child should something unforeseen happens. Hence it might be advisable to insure the baby against the sacrificing parent income.

3 Child Education

In Singapore today, education is extremely important. Without which, it's challenging for a child to remain competitive in surviving in this paper-based society. Setting aside education money for the baby sounds like a no brainer. Most parents is assumed to do it on their own. The default way is simply to save a monthly amount in the bank so that when the child grows up, he would have money for tertiary education without having to take loans.

Local university education or overseas university education?

With regards to this, there are a few considerations I would like to touch on. Firstly as parents, is there any intention to provide resources should your child have the means to enter eg, Harvard without scholarship?

In other cases, I've seen people secure their professional futures by studying law or medicine in overseas universities.

One common low income/middle class mindset flaw which I disagree with is parents who have the view that they should only fund the basic education of their kids because they didn't have similar opportunities in the past.

Ever heard people say, "last time our parents also never pay for our education, it's up to the child to settle their own education" ?

It's like saying, we suffered in the past, it's okay our kids suffer too. I disagree with this because as society improve, most families strive for social mobility. My dad was denied further education opportunities so he had an income ceiling when he was working. He thus wants to give us a quality education so that we don't have the same struggles. Inter-generational wealth is built through social mobility. By subjecting our children to repeat our struggles because we didn't cater for them is basically not progressing the family wealth.

So how should we go about education planning?

This image was designed from an earlier article I wrote on educational planning here. It pretty much summarizes some of our available options of how we can set aside this money.

Bank Accounts

Most parents typically would set up a bank account and deposit savings for their child. The method is simple enough however it exposes the parents to some risk including not being discipline enough to save money regularly, withdrawing the money for other purposes thus falling short of the savings goal and loss of purchasing power due to inflation.

Savings plans

The biggest benefit of savings plan is it forces parents to save and also prevents them from accessing the money prematurely. In recent years, due to dropping bond yields, savings plans generally have lower projected returns. I do however feel that such plans have its place in education planning because your child is highly likely to go to university within a predictable age if he or she doesn't screw up. The money needs to be there when that happens.

Investments

Return wise, investments are the most attractive form of wealth accumulation tool. Of course, they carry risk as well. One potential danger of using investment instruments for education planning is encountering a market downturn in the year your child needs to go to university. To liquidate money at a loss or worse still not have the funds ready due to market losses would be a major stressor for both child and parent. In modern day financial planning, a hybrid solution might provide a good balance.

Summary

To sum up the 3 important considerations when considering how to plan for a newborn:

1. Understand your financial well being to ascertain whether you wish to go government or private for childbirth. It's crucial to consider the cost of unforeseen complications as there are cases where parents go into debt to pay hefty medical bills due to having very little savings but going for the private hospitalisation option.

2. Protecting the insurability of your child should not be underestimated. The nature of insurance is such that insurance is always taken for granted in healthy times but cannot be bought with money when health issues arises.

3. Education is probably the most precious gift a parent can give a child. It is advisable to plan for the option to go overseas for further education. In the event the money is not used, you have a head start for your retirement anyway.

After reading this article, you may have some questions or may want to find out more about family planning through a conversation with me. You can reach me by dropping me a message.

Be sure to share the article if you feel this information is helpful. You will enable a lot more people to learn about financial planning for their newborn.

About Janice

I specialize in portfolio optimization (ensuring you get maximum value for every dollar you put in) and retirement planning.

Clients look for me primarily to outsource their retirement planning needs so that they can focus on other aspects of life that interests them. Many of whom are very good in earning their incomes in their respective professions and wish to ensure their monies continue to work harder while they focus on what they are good at. Refer to client testimonials here.

I've helped many clients who are referred to me reduce the costs they are paying for their insurance or help provide solutions when they deem they are stuck with huge commitments bought when they were younger but unsuitable for their present life stages. You can reach me at 94313076 or my social media accounts on Facebook and Instagram.

Disclaimer: The content created are based on my personal opinions and may not be representative to everyone or any organisation. If you have any doubts or queries pertaining to insurance or investment, please seek professional advice from a trusted adviser in an official setting. You may also reach out to me if you do not have a present adviser using the message box under 'Let's Talk'.