Invest Made Easy
Is Insurance Saving Plan Really Worth Investing In?
Shane My
Publish date: Tue, 22 Oct 2013, 12:34 AM
Shane My
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Like many of us, we seek for financial security and ultimately financial freedom. This blog is intended to act as a journal of investment as I journey towards that dream. At the same time, I hope that the articles written here would also benefit many others who share the same vision as me.
I've received quite a number of queries from friends whom already or intend to invest in an insurance saving plan as part of their investment diversification. Under most cases, my explanation to them were rather general without real figures to backup the point that it "might not" be a good option to diversify via an insurance saving plan especially if you are looking for higher returns.
In this article, I would like to illustrate the actual returns of an insurance saving plan and provide the pros and cons of investing in one.
Background
Most insurance savings plan requires an potential investor to do the following:
1. Contribute an annual premium/contribution/savings over a certain period of time. (Normally 10 years).
2. During the period of contribution, you are also protected normally for "Death & TPD". Some insurance companies do throw in additional coverage to make a plan more attractive.
3. Once you've completed paying 10 years worth of contribution you then enjoy the following benefits for the next 10, 15 or 20 years depending on the plan you choose. The benefits that one can enjoy are:
4. Obviously there's also insurance coverage during this period of the plan until it reaches maturity.
5. Once the plan reaches maturity, you will receive a lump sum cash payment including additional bonuses (determined by the insurance company)
However, I will to not further discuss the details of the insurance coverage provided by the saving plan as I believe most investors go for the insurance savings plan mainly for the cash payout and the lump sum cash returned upon maturity.
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Discussions
2 people like this. Showing 8 of 8 comments
Do not be naive. Nobody would be in any unprofitable business unless it is a pure charity. Do any body think of the fat commission, salaries and the profit of every insurance company. Their main source of income is the poor insurers. That is why no Insurance Company would insured a 100 yrs old.
2013-10-22 09:58
it's even more unbelievable when some insurance agents claim that by buying insurance you're doing a good deed in contributing cash to people who might need it while protecting yourself at the same time. Strangely i dont see these agents at hospitals or old folks home trying to insure people.
2013-10-22 10:05
Last date of entry is 59 or some 65 years old. When u r 50 and want to take inductance...they load yr premium.
If you do simple calculation, usually the returns is 2x what u paid in for term savings. If you are discipline, put in FD consistently and let it compound interest. U earn far more.
Insurance is for protection.
2013-10-22 10:07
haikeyila, i do see insurance agent at hospital helping their client. but anyway, do not buy insurance for their investment plan. it is totally b*llshit.
2013-10-22 10:08
I think there is a misperception where investor is trying to compare the "return" on insurance plan with unit trust funds and invest in share market. Insurance is bought for "protection" not "return".
Based on my calculation, most insurance savings plan actually gives a guaranteed return that is 1-2% above the current FD rate if you add in the timevalue, i.e. use the IRR concept. However, I noticed some agents sell the plans by stressing the "return" calculated based on lump sum payment upon maturity over the initial capital without factoring in the years to maturity. This is quite misleading, but most people on the street don't understand.
I don't think the Insurance companies are operating like a Ponzi scheme if you understand the industry well. Insurance is a highly regulated industry just like banks and under the supervision of BNM.
2013-10-22 16:20
They insure you because you age are still worth to invest,if you already become old machine and half dead.I'm sure they will not willing to insure a total lost investment hehe.
2013-10-22 16:23
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lotsofmoney
All the Insurance business at the moment operates like a huge Ponzi scheme. It could be better regulated like banks or cooperatives.
2013-10-22 09:45