Legacy Planning – When should you use “3-Generation (3G) Insurance Plans”?

According to Investopedia, Legacy Planning is a financial strategy that prepares a person to bequeath his or her assets to a loved one or next of kin after death.  These affairs are usually organised by a Financial Advisor.

If we begin with the end in mind, Legacy Planning is, in my opinion, one of the most important part of financial planning because ultimately, this is what financial planning is all about – leaving behind a legacy or what I call, “having transferable wealth”.  Yet, it is often a type of planning that people procrastinate on, plan haphazardly or worse, don’t plan at all.

From my experience working with many clients over the years, my conclusion is that it is not because  people don’t believe that death is a possibility or that they are “irresponsible” and don’t care.  What I’ve observed is that, it is not in their conscious mind to think about what legacy they want to leave behind when they pass on. And because of this, their financial discussions do not go beyond achieving their basic needs.

Think Wealth Preservation as a Starting Point

If you don’t have a very clear idea of what you want for your legacy plan, a good starting point is to use wealth preservation as your objective for legacy planning.  Wealth preservation is about ensuring your accumulated assets can be transferred to your intended beneficiaries with minimal leakages. You want them to enjoy the fruits of your labour, giving them a head-start and to safeguard them against financial difficulties.

This is what happens when a husband plans to ensure his widow will never have to be financially dependent on their children.  This is what happens when parents plan to ensure that their children will never have to be dependent on charity.  This is what happens when a well-to-do individual plans to ensure a charitable organisation will have enough cash flow to continue its mission.

Ever too often, my clients will tell me that they don’t want to leave a lump sum of money for their beneficiaries. Instead, they prefer to leave behind properties and investments for their spouses and children as they believe that it will hold its value much better compared to cash which can be easily spent.

The house would provide my child with rental income” said Mr Ang, a long time client & friend of mine. “Of course I will be giving my wife & child a sum of money as well but it may be spent in the blink of an eye.” He continued.

However, without proper understanding of your beneficiaries’ needs, leaving assets behind like property or investments may not be the most ideal way to fund your legacy plan.  This is especially so when the intended beneficiary or family member that you want to provide for is not financially savvy or worse, is what I would describe as a vulnerable beneficiary who is unable to manage money well.

The Challenges of Wealth Preservation

What you will leave behind as part of your financial legacy will inevitably consist of a mixture of assets and different types of asset classes have their own unique characters.  The challenge of preserving what you want to leave behind often lie in the type of assets and their characteristics, which make it difficult for the assets to be preserved when left in the hands of vulnerable beneficiaries.  While the intention is good, setting up your legacy plan with the wrong types of assets may render your best intentions futile.

Here are some of the common assets that people leave behind in their legacy planning and the challenges it may bring.

1. Cash (Bank accounts, Life Insurance Policies, CPF…etc)

Cash is the simplest form of asset that you can leave behind and there are very little restrictions to receiving and using money.  This is both a benefit and a major risk.  Leaving behind large sums of money may have the unintended consequence of encouraging over-spending by your beneficiaries.  The sudden inheritance of a large amount of cash may leave behind the unfortunate legacy of poor money habits.

2. Investments (Unit Trusts, Stocks and Shares, Bonds..etc)

Investments may potentially continue generating returns for the beneficiaries so that the initial amount or capital is preserved.  However, it does bring with it some risks.  What if your loved ones are still in their teens or are not financially savvy to handle investment during difficult market conditions? Leaving them to manage these investments will put them under undue stress that they are not ready to deal with. They may even end up making expensive investment mistakes that can decimate the investments that you’ve painstakingly planned to leave behind.

3. Property (HDB, Investment property, overseas real estate…etc)

Property is a common gift that people aspire to leave behind in their legacy planning due to the high property ownership rate in Singapore.  It can potentially generate a stream of on-going income from rental and potential capital appreciation.  For many, leaving behind a property will not only serve the purpose of preserving wealth, it may actually enhance or grow the wealth that is left behind.

Yet, leaving behind property as a legacy asset may bring about other challenges.  They include:

  • It may be difficult to divide your property amongst your Beneficiaries leading to disagreements.
  • The inherited Property may form a part of property ownership for your Beneficiary and Additional Buyer Stamp Duty (ABSD) will be imposed should he/she want to purchase a second property.
  • There may be costs involved to maintain the property or potential servicing of mortgage loan if there is no rental income.
  • The possibility of beneficiaries being unable to agree on the property use, leading to unhappiness. For example, to sell or to rent.

You may be thinking that having something to leave behind is always better than having nothing to leave behind. However, the right asset type left behind matching the aspiration of your beneficiaries will help them to go a long way and it may even prolong your legacy to benefit more generations to come.

Yet, for beneficiaries who are not financially mature or capable to handle large sums of money or assets, you may have to look for alternatives.

Planning for Vulnerable Beneficiaries – Consider “3G Insurance Plans” as an alternative Legacy Asset

A ”3G Insurance Plan” is a type of insurance plan designed to provide wealth for 3 generations. Such plans help to provide a stream of income for the owner of the plan and subsequently for his beneficiary. The capital is usually preserved and passed down to the 3rdGeneration. This may be one of the more cost effective methods adopted by Parents, Benefactors, Guardians or Caregivers who wish to benefit their dependent or ward for a lifetime.

How does a “3G Insurance Plan” work?

> Mr Ang aged 40 plans to set aside $300,000 cash for his daughter aged 8 and his future grand children as part of his legacy planning.

> Mr Ang takes up an Insurance Plan with his daughter as the Life Insured and this plan starts to pay an income stream from the end of the 5th year from the commencement of the plan. He can choose to re-deposit the income back into the plan or to spend it on himself.

> Mr Ang then decides to transfer the ownership of the plan to his daughter when she turns 35 years old. This will allow her to continue receiving the income stream provided by the plan.

His daughter not only inherits the plan which provides her with an income stream, it also provides a coverage amount of $300,000 (the original capital) plus additional bonuses. Upon her demise, the coverage amount will be paid to her beneficiaries.

Keeping It Simple for Everyone.

“3G Insurance plans” are not usually recommended as the only type of legacy assets but often, they have very good reasons to be part of a well thought out legacy plan.  This is because of its ability to convert the legacy asset into the following real life effects for both you and your beneficiary.

1. Money in the form of Income

By giving the money in the form of an Insurance plan, the effect is that the beneficiary will be receiving a stream of income for life instead of a large sum of money immediately.  To a vulnerable beneficiary, a large sum of money is a big inheritance while a lifetime of monthly income is an invaluable legacy.

2. Regular Income without Regular Management

This is perhaps the most unique feature and benefit of an Insurance plan.  It provides a stream of income, typically for a lifetime, for the beneficiary.  As the insurance company is managing the regularity of the income pay out, the beneficiary does not have to be actively or competently involved.  For a vulnerable beneficiary, this is usually the most important consideration – a fuss free approach.

3. Continue your Legacy

“3G Insurance plan” comes with death benefit which is generally equivalent to the initial amount of premium invested.  This means that not only will the beneficiary be able to benefit in the form of lifetime income, the initial sum of premium will be preserved to the generation after in the form of a low risk guaranteed life insurance pay out.

Plan Well Not For Yourself – You can Impact Generations…

富不过三代 (A saying in Chinese that ‘Wealth does not pass through 3 Generations’). We work and plan to ensure that our wealth would be able to outlive us, and yet many people whom I have spoken to fear that their wealth may not sustain through more than 3 Generations.

A study conducted by Williams Group Wealth Consultancy showed that 70% of wealthy families lose their wealth by the second generation and 90% by the third. This could be due to bad decisions, poor management, higher costs of living, medical inflation and the list goes on.

Even if you don’t have vulnerable beneficiaries, preserving your hard earned wealth will always be a challenge, especially when the control is no longer in your hands.

If you would like to explore using “3G Insurance Plans” as part of your legacy planning, use this Guide to Legacy Planning using “3G Insurance Plans” to help you get started.  It contains a series of 10 questions that I use to help clients understand if this type of insurance plan is suitable to be incorporated as part of their legacy assets.

(NOTE: Get our Guide to Legacy Planning using “3-Generation (3G) Insurance Plans to help you understand if this type of insurance plan is suitable to be incorporated as part of their legacy assets. Get your guide Here)

Proper planning goes a long, long way. Even through 3 Generations!

Article by Andrea Loh
Email: andrea.loh@gen.com.sg

The writer is a Financial Services Manager representing GEN Financial Advisory


If you want to know more about Legacy Planning or any other enquiries, you may contact me through whatsapp, schedule an appointment with me or fill up the form below and I will get back to you as soon as possible.


Andrea Loh
Financial Services Manager

RNF No. LLP200146556
MDRT qualifier with 12 years of experience in the industry


July 2022
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