What insurance shall I buy for my new baby?

One of my colleagues just had a baby boy. He was elated, as was I, but he had one question. What insurance should he buy for his baby boy?

For the baby boy himself, my answer was very straightforward. My colleague’s baby just needs medical insurance.

But my answer did not stop there.

Now that my colleague is a new parent, he and his wife now have the additional responsibility to bring up a new person in their lives. So whilst they do not need to buy anything beyond medical insurance for their baby, they need to buy other insurance to ensure that their baby will continue to have financial support as he grows up, come what may.

So here are the additional insurance for new parents to take up:

1. Life insurance for the working parent

   What would happen in the most unfortunate situation of you or your spouse dying prematurely whilst your child is still growing up? If your family unit depends on the income of that parent, then supporting your child will be a struggle for the surviving spouse.

   So at a bare minimum, you should get life insurance for the working parent. Ideally though, you should have life insurance for both parents, so that the surviving parent has a cash lump sum to draw on to support your baby’s growing up years. Raising children these days is expensive, and life insurance will go a long way to ensure the financial security of your children.

2. Total and Permanent Disability Insurance

   There can be no worse situation for a child than a parent dying right? Actually, there is. It’s worse if the parent suffers total and permanent disability through an accident or disease.

   In this situation, not only the affected parent cannot work and is unable to contribute to the family income, but his spouse must also have the financial resources to take care of him. It’s a harsh double whammy.

   That’s why total and permanent disability (“TPD”) insurance is crucial for new parents. Thankfully, most TPD insurance is packaged with life insurance and is very affordable.

Of course, the above insurance is over and above medical insurance for you and your spouse that you should already have even before the baby’s arrival. If you want the complete list, please check out my previous article.

What insurance should you NOT get?

You might get approached for other insurance policies. Here’s my response to common ones offered:

• Life insurance on your child’s life

  Absolutely not needed. You do not financially depend on your child so any cash paid on the death of your child is not necessary. Further, no amount of cash will ever compensate you for the grief caused by the loss of your child.

• Education policies

  These are usually savings or investment plans linked to insurance. Whilst it is important to build an education fund for your child, there is no need to link it to insurance. Just buy pure investment products like a unit trust or exchange traded funds so that you can maximise the growth of your savings for your child’s education needs. If you are unsure of how to do this, consult a licensed financial planner from the Financial Planning Association of Malaysia.

  (Tip: If you want to build an education fund for your baby, consider Simpan SSPN Prime, an education savings scheme guaranteed by the Malaysian government. You get tax relief on contributions of up to RM8,000 every year and you get annual dividend on your fund too).

In Conclusion

As a new parent, get medical insurance for your baby, and life and TPD insurance for yourself and your spouse.

Happy parenthood!

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Yours truly,
Harvin Sidhu