Legacy planning is a difficult subject, especially for high-net-worth individuals (HNWIs) who hold multiple asset classes in their portfolios. It is tough to distribute liquid and illiquid assets - including cash, property, shares and businesses - evenly among their next of kin.
Sammeer Sharma, executive director and head of bancassurance at Standard Chartered Bank Malaysia, says the key to a smooth transfer of wealth is fair distribution based on one's needs. "If you have two properties at different locations, a company, some shares and a little cash, how do you distribute them among your three children? It would be difficult to divide them evenly," he adds.
"Now, what if you could maximise your liquidity and grow your assets further so that the value of your cash matches the value of your company and properties? Then, you can easily divide your assets into three equal parts and distribute them to your children."
Sammeer says the bank has noticed another gap in legacy planning, which is the prolonged processing period before beneficiaries receive the proceeds from the deceased's estate. "With a will, it takes about six months. It may take more than three years if there is no will. We want to speed up the process by distributing wealth via insurance."
In view of this, Standard Chartered Bank Malaysia has partnered Prudential Assurance Malaysia Bhd to launch legacy planning solution PRUheritage. The insurance product comes with a few benefits, such as creation of assets, unlocking liquidity and equitable wealth transfer, making it a unique solution for HNWIs to deploy their assets.
"PRUheritage helps maximise your liquidity and grow your assets. It has insurance coverage of up to 3.65 times the premium," says Sammeer.
"For example, if you are investing RM100,000 today, it will grow to RM365,000 later. That is the amount of money your next of kin will receive when you pass away. With the growth in assets, it is easier for you to plan an equitable wealth transfer."
Sammeer gives an example of a client who holds a property worth RM11 million, a business worth RM12 million and cash holdings of RM9 million. If he leaves the property to his wife, the business to his eldest son and the cash to his youngest son, it would not be a fair distribution. But he has no intention to liquidate his business or property.
"Now, if he takes RM4 million from his cash pool and invests in PRUheritage - assuming that the cover is two times - it will grow to RM8 million, which pushes the value of the total estate to RM36 million. This will allow him to distribute his assets equally so that all three beneficiaries get RM12 million from the estate."
PRUheritage invests in an equity and fixed-income fund managed by Prudential. Over the past five years, the fund's gross investment return has been positive, averaging about 6.18% per year.
An added benefit of the product is that PRUheritage's wealth distribution via insurance can take as fast as 14 days. The product also comes with a premium financing facility, the first of its kind in the country.
Sammeer says clients who want to maximise liquidity can opt for this facility, which has the highest financing ratio of 30:70. For example, if a client plans to invest RM100,000 in PRUheritage, the bank will lend him RM200,000 so that the total premium is RM300,000. With cover of up to 3.65 times, the client enjoys asset growth of more than 10 times.
"The premium financing facility is very popular in Singapore and Hong Kong. As the local market gets more advanced, we have decided to launch it in Malaysia. It is meant for people who are financially savvy, understand and are comfortable with the risks as well as able to serve the loan and interest," he says.
The current interest rate for premium financing is as low as 4.02%. It is very competitive, says Sammeer, as the interest rate for personal loans is between 12% and 15%. However, there is a risk that the interest rate may go up, making it more expensive to service the loan.
The minimum investment amount for PRUheritage is RM500,000 and the maximum is RM10 million.