Looking for answers to the question “What is a legacy?”, I was intrigued by these words from the founder of Forbes magazine:

“How you start is important, but it is how you finish that counts.”

– Bertie Charles Forbes

In life, we tend to obsess over planning great beginnings – getting our first job, throwing a grand wedding, owning our first home, and so on. However, shouldn’t finales be as memorable and impactful?

Imagine this… You've dedicated your life to achieving a successful career, raising a family with strong values and attaining your desired standard of living. But what happens to everything you’ve built when you’re gone? How can you ensure your exemplary legacy lives on for generations?

That’s what planning one’s legacy is all about – paving the way to exit the world like we’ve never left, and leaving behind a gift that positively impacts others and endures beyond one’s lifetime. In the financial context, this is where legacy planning comes into play.

If that sounds irrelevant to you or even complicated, read on as I share why everyone needs a legacy plan, and how life insurance can be a smart and simple way to pass on something meaningful to your children and future generations.

Who leaves a legacy? Is it only for certain “types”?

I once thought that legacies were only for prominent people who have streets and buildings named after them or wealthy philanthropists honoured on appreciation walls at hospitals. Now older and hopefully a bit wiser, let me say this… You don’t have to be crazy rich to leave a legacy.

That’s because at the heart of every legacy is our loved ones and our desire to look after them – not how much fortune we have to our name.

Legacy planning is about ensuring your loved ones can continue enjoying their standard of living when you’re no longer there to support them financially. It’s a show of your commitment and love through conscientiously planning in advance for the effect your passing will have on them.

No matter how much money you have, you can leave a legacy – and it’ll be a priceless gift to those you love most.

The importance of legacy planning

We’re often so absorbed with day-to-day quests that we don’t take time to plan for what happens when we’re no longer around. You might live an outstanding life today with an impressive job title, sprawling home, flashy car, prestigious golf club membership, frequent holidays to exotic places and you may even actively support philanthropic causes. However, neglecting proper legacy planning could actually erode your vision of how you want to be remembered when you’re gone.      

Creating a will, setting up your Lasting Power of Attorney and ensuring your beneficiaries for your insurance policies and Central Provident Fund savings are updated are just some of the things you could do now to minimise family conflicts and stress when you die. And then there’s your actual wealth transfer or legacy plan.

Want to leave a legacy but don’t know how? Thankfully, it can be as easy as maximising the financial plans you already have!  

5 reasons why smart folks use life insurance to leave a legacy

Many people already know that one of the key purposes of life insurance is to provide for our loved ones when we die. However, the value of life insurance in legacy planning – the transfer of your assets to your loved ones after you’re gone – is often overlooked.

Here’s why life insurance could be a useful way to leave a legacy (while there are many different types of life insurance plans, I’ll focus on whole life and term life insurance in this post):

• It’s an efficient way to pass on your assets

Unlike physical assets like property, vehicles, jewellery, artwork and corporations, life insurance offers great flexibility when it comes to distributing your assets. The lump-sum death benefit is paid in cash, offering liquidity and hence, the freedom to treat all your beneficiaries equally.

• It offers certainty

Term and whole life insurance policies typically pay a sum assured upon death, based on the coverage you choose and the policy terms,  so long as the policy is active. You can rest assured that the amount that you want to give your loved ones will be bequeathed – even if there’s an economic crisis or market crash. This is unlike investing in things like stocks and exchange-traded funds which are driven by markets and company performance, and hence comparably unreliable at offering certainty of payout.

• It can offer cash value

Whole life insurance plans could offer cash value – which is accumulated over time and usually comprises a pre-determined guaranteed amount as well as non-guaranteed bonuses – in addition to the protection component so your money can grow while you’re being protected.

This could be useful if you plan to leave a substantial sum to your children as legacy gifts and at the same time, have the flexibility to access the plan’s cash value if the need arises.  

For instance, Singlife Whole Life Choice accumulates cash value over time and also offers you the option to convert your policy cash value into monthly payouts that could supplement your retirement needs. This means you can have an additional retirement income stream in your golden years and yet when you die, your beneficiaries will still receive a payout. Keep in mind though, that when you exercise this option, your loved ones may receive a smaller payout.

• Tax-free inheritance

Insurance payouts are not taxable in Singapore if death is on or after 15th February 2008. This means the death benefit your heirs stand to receive from your policy when you die will not be reduced due to estate duty. Aside from that, you won’t be taxed on any proceeds from insurance, such as income payouts, surrender values or claims paid to you while you’re alive.

On the other hand, with other inheritance tools, like overseas property investments which you might be considering bequeathing to your loved ones when you die, you’d have to factor in the local tax and transfer of ownership laws applicable in the jurisdiction in which those properties are located.

• Protection from creditors

Should a person die bankrupt or with unpaid debts, several things can happen:

-If there’s no will, their assets will be frozen – no bank account withdrawals, no sale of property and cars, etc – and the estate will be distributed according to the Intestate Succession Act. In other words, beneficiaries wait longer for financial support, and the law decides who receives the assets and in what percentage, not the deceased party.

-If there’s a will, the executor collects all the deceased’s assets from banks and financial institutions, pays off debts and taxes, and only then, distributes what’s left to beneficiaries according to the will.

In both scenarios, the sum that the individual wants to bequeath to his/her loved ones may not be the same as what’s eventually received.

However, in Singapore, policyholders of life insurance policies or accident and health insurance policies with death benefits have the option of making a trust nomination – this will transfer all policy ownership rights and all living and death benefits to specific beneficiaries, in effect, creating a trust for them. If bankruptcy happens or if the policyholder has unpaid debts at the time of death, the policy benefits are protected from creditors and the beneficiaries will continue to receive the full sum assured.

A scenario of how life insurance can be used in legacy planning

A term life or whole life protection plan may be useful in legacy planning if you’re seeking a practical strategy to leave a substantial sum to your children as legacy gifts and at the same time wish to keep a portion of your wealth for your desired retirement lifestyle. Here’s a scenario that explains how a life insurance plan could help achieve this:

In the illustration above, the Lims, who are businessowners, have S$15 million in assets - S$5 million in the business and S$10 million in cash. Their goal is to ensure each of their three children receives S$5 million after they’re gone.

Say Mr Lim uses S$2 million to buy a life insurance policy on his own life with sum assured of S$10 million.

Upon Mr Lim’s death, the two children not involved in the business will receive S$5 million each, ensuring their financial security.

The third child, who’s actively engaged in the business, inherits the S$5 million business, continuing the family legacy.

This legacy planning solution ensures an equitable and secure future for each child while allowing the Lims to have a comfortable retirement with S$8 million.

Start writing a meaningful finale

Legacy planning can be the start of a very meaningful farewell gift to your dearest ones. Using your life insurance policy – be it whole life or term life – to leave your family an inheritance is a smart, easy and safe move.

Whoever said you have to put aside a separate stash of money in the bank or compromise your lifestyle just to give a legacy gift? There’s a better way! With life insurance doubling up as your legacy plan, you can continue pursuing other financial goals like building your retirement nest egg while having enough to maintain your preferred lifestyle.

^Notes

^{This advertisement has not been reviewed by the Monetary Authority of Singapore.}