"I don't know if I'll be in Singapore next year so I don't think I want to commit to anything. Moreover, my company already has insurance."

If you are a foreigner here, do you think like this?

In this article, I provide 3 reasons why financial planning is still important.

1. Most company insurance does not cover you for critical illness

This year alone, I've spoken to a number of foreigners carrying a myriad of valid passes and one of the biggest commonalities about their company insurance is that they do not cover for critical illness. Simply put, the firm is not responsible for your income if you are critically ill.

To provide some perspective, company insurance for expats typically covers for medical fees, either when one see a general practitioner or medical treatments in hospitals up to a certain limit. The higher an expat's income, the greater the limit. Often, big companies also provide a death coverage which includes a one time lump sum up to a certain multiple of the expat's income. A typical cover may state death or terminal illness. However, I need to point out that terminal illness is not the same as critical illness.

What is critical illness? Some examples of what falls into these category include stroke, cancer, heart attack, kidney failure, etc... Basically major illnesses that might make you not be able to work for a period of time.

How is it different from terminal illness? Terminal illness essentially means that a person is medically certified that death will occur within 12 months. In other words, you are certain to pass on and not recover.

What does it mean to get a critical illness coverage and why is it important?

Typically, a critical illness insurance provides a lump sum of money to the policy owner upon the diagnosis of critical illness. This lump sum of money can be used for any purpose up to the policy owner's discretion but it's typically used as a form of income replacement.

Think about it, as a foreigner working overseas, you probably left home, away from your family and work in a foreign country for better career prospects and remuneration right? Now, in the event of short term illnesses, a typical hospitalization treatment is sufficient to cover you and you can resume work after recovering. In the event of death, your family gets a lump sum to cover for the loss of a bread winner and they can probably adjust to a new lifestyle. What about in the event of a severe illness like cancer? Firstly, will the firm continue to keep you in employment if you need to have a prolonged recovery? Secondly, will your expenses go up due to changes in lifestyle? Thirdly, in the event you need to stop work and return home to recuperate, will your new job after recovery provide a similar remuneration?

A critical illness coverage providing a SGD lump sum payout of a certain multiple of an expat's income can make a lot of difference. This is especially the case if the spouse is not working and there are young children involved. A sudden illness may curtail the expat package benefits and this may mean going back home to work and earn an income in a different currency. If employment is stopped, this also means that local private medical treatment costs may be borne by the foreigner. It is expensive! A prolonged recovery will also mean a huge opportunity cost in income. It can make a big impact especially if you make financial commitments based on an expected income for the next 5 years and suddenly go without it.

2. Stability in SGD

Whenever I ask foreigners if they intend to close their bank accounts and bring all their money back to their home country when they return, most of them says no. This is because the SGD offers a good exchange rate hedge against their home currency. As of now, the SGD has been stable and thus simply saving money in Singapore for 10 years or more can make some people richer because their home currency has depreciated by a lot. A good example is our closest neighbour.

As a result, people develop the habit of only transferring the amount of money they need back home and leaving the balance in their Singapore bank accounts. The issue with keeping the money in bank accounts is the pathetic interest rates in local banks. The rates can be as low as 0.05%. Home currency depreciation may help to off-set the spending power loss of SGD assuming the money kept in the bank is meant for old age and retiring back home. However, the longer one stays in Singapore, the more their spending power gets eroded if all their income is kept in bank accounts. More often than not, expats who eventually become permanent residents or whose children grows up and have the opportunity to study in good universities will feel the pinch when they either pay inflated school fees or inflated property prices should they choose to settle down.

Retirement is in the end stage of our life cycle. This means that it is highly possible the funds kept in SGD will remain status quo for a very long time.

3. Certain life events are guaranteed (wherever you are)

As much as foreigners are unwilling to commit to long term solutions in a foreign country, the only certainty is certain life events that will happen, not their whereabouts. Events like children growing up and needing a sum of money to fund for their university education and retirement are definite. Unless one sees themselves taking their kids out of international school and going back home for a university education, a typical overseas tertiary education in any developed country is going to cost 6 figures. Depending on where, a SGD conversion to that country's currency is likely to be more worthwhile.

Likewise, retirement is also a key concern for everyone whether you are a foreigner or a Singaporean. The quality of your retirement will depend on the quality of the financial management pre-retirement. Whenever we are talking about something 20-30 years in the future, anything can happen. What is for sure, money staying at 0+% compared to 2-5% is definitely less ideal.

Even as a Singaporean, I don't spend every cent I earn. In fact, a huge portion of my savings is likely to remain untouched till old age. I don't see why a foreigner's money management would be any different. We all need to leave a sum of money untouched till old age if not we will have none to use next time. This is common knowledge. Hence, while it remains unused and in SGD, it's best to let it work harder for you.

What you may not know about Singapore financial solutions

The need for liquidity is many times psychological. Even so, there are many solutions in Singapore that offers varying degrees of flexibility but flexibility exists! Also, modern day financial solutions need not necessarily be very long term. Shorter term solutions also exists. The key lies in the finding out!

Summary

In short, there are key considerations why foreigners should also look into financial planning solutions in Singapore while they work here. To refresh your memory:

1. Critical illness protection may be a key concern because it affects your ability to earn the same income should you fall severely ill.

2. If you intend to keep your funds in SGD for a long long time even if you need to work elsewhere, then preserving its spending power would be your key objective.

3. As long as you have children and you will retire, you need to plan for these life events and ensure you have the means to fund these activities regardless you will work in Singapore or elsewhere. While in Singapore, you should have some solutions in SGD.

If you would like to explore some of your financial planning options, please speak with a trusted advisor. You can also drop me a message if you would like me to help you with it.

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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'.