In the Asian context, being able to “leave something behind” for your loved ones when you die is especially meaningful. Typically taking the form of a financial asset like a substantial sum of money, it’s a means of not only giving the next generation a leg up in life but also being remembered for a long time to come. However, when you’re immersed in building your empire and pursuing various passions, there can be little time left for financial nitty-gritties like legacy planning – the process of leaving a lasting legacy.

In this article, I’ll share how indexed universal life (IUL) insurance could help you achieve your legacy planning goals without hassle or compromising your retirement dreams.  

Singapore is now the fourth wealthiest city but how many affluent people will actually leave a lasting legacy?

Here’s the situation. Thanks to Singapore’s growing affluent population, the city has become the fourth wealthiest, overtaking London in global wealth rankings with 244,800 resident millionaires, 336 centi-millionaires and 30 billionaires. That’s impressive for a small nation, but when it comes to leaving an inheritance for their loved ones, do the wealthy adopt the common mindset of “let them take what’s left and divide it between them”? Or, have they actively put financial legacy plans in place? While there are no concrete answers, here’s a clue…

Stanz Tan, Head of Investments and Wealth at Singlife points out that despite the growing number of high-net-worth individuals (HNWI) in Singapore, only 16% of affluent consumers own a legacy insurance plan.

Of course, there are various instruments you can use to leave a financial legacy, but I’ll be focusing on a type of insurance plan that can be used for legacy planning which is gaining popularity among the wealthy in this part of the world: IUL insurance. It’s something  you might want to consider to help you achieve your financial legacy goals strategically and simply.

Some IUL insurance basics

What is IUL insurance? Simply put, it’s a type of insurance with both protection and investment components that provide a death benefit and cash value respectively.

Designed as a legacy planning solution for the affluent, it’s highly suited for individuals who have completed their big-ticket expenses in life and are looking to preserve the wealth they’ve built and pass it on to the next generation. For a deeper understanding of how it works, read a guide to IUL.

Four reasons why IUL insurance is a powerful tool for legacy planning

If you’re buckling down to some estate planning and wondering if IUL insurance is the right tool for passing down your financial success, you’ll be pleased to know that it’s a multi-purpose plan that can help you achieve various goals. Check out these advantages of IUL insurance for legacy planning:

1. Balance between saving and investing

To grow your legacy fund efficiently while maintaining enough for your retirement nest egg, you need a solution that’s sound and yet can potentially grow your money. IUL insurance gives you “upside” potential by growing your policy’s cash value with a Fixed  Account that has a minimum guaranteed crediting rate (i.e. certainty on returns); and an Index Account tied to the performance of stock market indices like S&P 500 Index and Nasdaq-100 Index (i.e. higher growth potential).

2. Downside protection

As your legacy fund expands with an IUL plan, you’re shielded from significant losses with safeguards embedded into the product. A guaranteed floor rate typically at 0% per annum on the Index Account means you’ll carry less volatility risk and have assurance that your investments won’t draw negative returns. In other words, no matter how poorly the market performs, you’ll have lifetime assurance on the lowest rate for your Index Account. There’s a small trade-off for this security: there’s usually a cap on the maximum upside.

3. Insurance coverage

Unlike other tools used to pass on a financial legacy like property or shares, IUL insurance typically gives you lifelong coverage against death. This means that from the very first day the policy takes effect, you’re assured that your loved ones will get a payout when you die (provided the policy is in force).

4. Flexibility

Your circumstances will change as you build your legacy. At times, you’ll need greater financial certainty and at others, you may have greater risk tolerance and desire for higher returns. IUL insurance gives you the freedom to change the premium allocation for your Fixed Account and Index Account so you can dictate how hard your money works for you. Another flexibility IUL insurance usually offers is the option to change the life assured. For instance, if you’re a business owner and your company purchases an IUL plan to insure the company CEO, you can change the life assured to yourself if you decide to run the business when your CEO subsequently retires. In this situation, your IUL policy will function as key person protection, which ensures business continuity and resilience should the unexpected happen to the insured key person managing your business. 

From the above, it’s clear that IUL insurance has its benefits when it comes to legacy planning. However, it’s important to understand exactly how it works before getting one for yourself. For instance, there are monthly charges which are deducted from the policy, and there may also be other charges imposed if you make a partial withdrawal or choose to surrender the policy.

A multi-purpose solution to protect your financial  future and preserve your success

IUL insurance can meet diverse future-proofing needs including wealth accumulation, key person protection, and, of course, legacy planning. Using Singlife Legacy Indexed Universal  Life as an example, let’s look at how IUL insurance works in two legacy planning scenarios:

Scenario 1:  Wealth transfer and retirement adequacy

Brian, aged 42, is a successful small business owner who has a wife, a son, aged 15, and daughter, aged 12. He’s looking at legacy planning and wants to secure a comfortable future for his family by providing US$3 million for their needs. With Singlife Legacy IUL, Brian can make his money work harder. He pays a single premium of US$820,000 for US$6 million in coverage. This will allow him to have an excess of US$2.18 million for his retirement.

Scenario 2:  Estate equalisation for a business owner

Richard, aged 45, has accumulated assets totalling US$8 million, with US$5 million invested in his thriving food business, which he co-manages with his eldest son whom he intends to pass down the business to. The remaining US$3 million in cash is intended for his two other children, who are not involved in the business. A plan like Singlife Legacy IUL can help him achieve his goal of distributing his accumulated assets equally. By paying a single premium of US$1.36 million to insure himself for US$10 million in coverage, Richard can ensure fair distribution of his wealth among his three children. This allows him to pass his business worth US$5 million to his eldest son as planned, while ensuring his two other children receive the same value in cash matching his food business.

Final notes

IUL insurance is powerful as a legacy planning device for the fundamental reason that it lets you leverage the potential of stock market performance while giving downside protection and paying a death benefit that your loved ones can inherit. With one single plan, you can achieve different legacy planning goals, from wealth transfer to estate equalisation. And the best part is, you can let your IUL policy quietly grow and preserve wealth while you carry on with your work and personal pursuits and maintain ample funds for a comfortable retirement. It’s one powerful move that strengthens your overall gameplay and helps your success transcend generations.

^Notes 

^{This policy is underwritten by Singapore Life Ltd.}

^{This is published for general information only and does not have regard to the specific investment objectives, financial situation and particular needs of any specific person. You may get a copy of the Product Summary from Singapore Life Ltd and the participating distributors’ offices. You should read the Product Summary before deciding whether to purchase the product. You may wish to seek advice from a financial adviser representative before making a commitment to purchase the product. If you choose not to seek advice from a financial adviser representative, you should consider whether the product in question is suitable for you.}

^{As buying a life insurance policy is a long-term commitment, an early termination of the policy usually involves high costs and the surrender value, if any, that is payable to you may be zero or less than the total premiums paid. This is not a contract of insurance. Full details of the standard terms and conditions of this policy can be found in the relevant policy contract.}

^{Information is accurate as at 06 Nov 2024.}

^{This advertisement has not been reviewed by the Monetary Authority of Singapore. Protected up to specified limits by SDIC.}