Insurance increases as Chinese protect young and old
Children are expensive. For Chinese parents, saving is often attached to an insurance policy. But is life insurance the best way to invest in your child?
Wu Hong Jiang is 40 years old, runs his own business and lives with his wife and baby. He has two life insurance policies, one for himself, and last year he bought a policy for his son - one that combines insurance with saving.
Across Asia millions of newly-middle-class families are making personal finance decisions for the first time. We look at the big issues facing them.
"Parents start paying premiums when a child is small," says Phuong Chung, senior vice-president at Manulife-Sinochem.
"They can then redeem the policy when the child is between 21 and 24, when the cash can be used to pay university fees. Sometimes they choose to redeem it later, when the child is between 24 and 27 - at that time, the child might use the money as a down payment on a property when they marry."
He says these kinds of products now make up about half of the policies his company sells to its mainly middle-class market.
"Generally parents get a 3-4% return on the cash they have invested. And attached to the policy will be critical illness cover and life insurance for the child."Best way to save?
Hong Jiang is paying just over $600 (£366) a year for his policy. Although there is a guaranteed return of up to 4%; with inflation running at over 5% in China, it might not be a good investment.
"On an insurance product, the investment return is much less," says Dr Feng Liu, the chairman of the Financial Planning Standards Board of China.
He believes parents do not need to buy an insurance product in order to save for higher education.
"It forces you to make savings, but you don't need life insurance for your kids, only for yourself," he says.
In China, university education is not subsidised by the government and there is no student loan programme. This might be one reason for the popularity of long-term saving, as generally, parents foot the bill for higher education.
Another reason could be China's "one child" policy. Parents are more concerned about getting the best education they can for their only child. That can be extremely expensive - especially if the child studies abroad.Ageing population
Wu Hong Jiang was born before the "one child" policy was implemented in China, but both he and his wife are only children. This, he says, is forcing him to think about another kind of family insurance policy, as they are taking care of two elderly couples.
"It is our responsibility and we must face it. But this is why I am thinking about taking out more insurance for our parents. That way, we could hire someone to take care of them in the future when they need help," he says.
According to Phuong Chung from Manulife-Sinochem, the premium on these kinds of policies is very high and it's considered to be a luxury item.
"A 'child' might pay a very high premium for a short term - usually five years," says Phuong Chung. "After that period, the parent can get a yearly cash payment, around 8-10% of the sum assured, to help them with expenses."
The policy would mature when the parent is 80 years old and overall, the return on the cash invested would be about 3-4%.
End Quote Dr Feng Liu Chairman of the Financial Planning Standards Board
It's risky to rely on society to look after you when you are older. Family is still very important”
"However, this kind of policy also has a life insurance element, so it would pay out if the parent died before the age of 80," he says.
China has an ageing population. The 4-2-1 family, made up of four grandparents, two parents and one child - like Wu Hong Jiang's - is common.
It means the less numerous, younger generation is increasingly looking after a larger, older generation.
Chinese people do save for their retirement if they can, but with people living longer, many will experience a shortfall of cash in their old age.
Dr Feng Liu says this could become a big social problem in China and he has this advice for those thinking broadly about their financial futures.
"Don't overdo insurance - have it, but have savings too. And very importantly, maintain good relations with your children and parents. If you are allowed to, have two kids not one. It's risky to rely on society to look after you when you are older. Family is still very important."
The opinions expressed are those of the contributors and not held by the BBC. The material is for general information only and does not constitute investment, tax, legal or any other form of advice. You should not rely on this information to make any investment decisions. Always obtain independent, professional advice for your own particular situation.