Aug 13 2011, 11:57 PM
QUOTE(limyikwang @ Aug 13 2011, 11:22 PM)
When considering issues related to insurance purchase, the three keywords that you should keep in mind are PROTECTION, PROTECTION and PROTECTION. The main function of insurance has always been providing financial support in the event of awful stuff - death, illnesses, accidents, living too long or dying too young, etc. Risk transfer is the forte of insurance companies and where they can offer the most competitive products.
Insurance plans with savings elements are almost always too expensive compared to other channels of regular/single lump sum investments. Of course, there are several advantages such as the fact that insurance savings are locked up until much later and therefore does not tempt you to spend it away too early, although it also means that liquidity might be an issue. Another notable advantage that has been mentioned by others here is the ability to continue investments (via waiver/payor benefits) should the unfortunate happens. In addition, for participating products (i.e. plans that allow you to participate in company's investment and operational performance; most savings plan are of this type), companies can smooth out the bonuses they pay to reduce volatility compared to the actual markets. But over the long haul, if you are investment focused you should do better with unit trusts or with your own investments.
My suggestion is therefore to buy the highest amount of sum assured that you need and can afford but pay only for protection - ask your agent/ bank salespersons to take away savings element. You will save alot on premium and can invest those seperately, e.g. in ASN funds.
I can say with certainty that there is no insurance plan still being sold in the market that can guarantee more than 4% in yield to policyholder at the moment - most can hardly manage more than 2-3%. Even if you add in non-guaranteed bonuses, the yield is usually no more than 6-7% per annum. Any plan that does far better (based on sales illustration) are most likely either mispriced or perhaps left on the shelf for too long, being priced perhaps in the days when FD can hit double digit return. In either case, you should not touch that insurer with a mile-long pole!
The nastier scenario would be that many people are misled by the term "return" when approached. Check - you will most likely realise that the return is on sum assured, NOT premium paid. As some of you might realise only too late, the total premium you paid over time for such savings plan have a tendency to exceed sum assured by quite a margin. The REAL measure of performance is yield on your premium - and that's where reality usually bites (by which time your agent might have jumped ship having collected his/her hefty commissions for six years)
I have left out investment-linked plans here because they are a different kind of animal all together. Perhaps next time. But I will leave with this: READ THE SALES ILLUSTRATIONS CAREFULLY, ESPECIALLY THE FINE PRINTS
DISCLAIMER: I am not saying that all insurance agents who primarily sell savings plan are crooks. Most of them are genuine believers of the plans, some are even actually giving sound advice. As said above, they do serve a purpose and can be suitable for some. But the reality is that in the pursuit of commissions on the humungous premium that are paid, many agents tend to paint too rosy a picture.
I work in the insurance industry - and I'm posting this out of my conscience. I welcome constructive criticism and alternative points of view, but please do not insult/attack me without proper research beforehand. I only ask for that. Peace out =)
agree. and such a responsible post... kudosInsurance plans with savings elements are almost always too expensive compared to other channels of regular/single lump sum investments. Of course, there are several advantages such as the fact that insurance savings are locked up until much later and therefore does not tempt you to spend it away too early, although it also means that liquidity might be an issue. Another notable advantage that has been mentioned by others here is the ability to continue investments (via waiver/payor benefits) should the unfortunate happens. In addition, for participating products (i.e. plans that allow you to participate in company's investment and operational performance; most savings plan are of this type), companies can smooth out the bonuses they pay to reduce volatility compared to the actual markets. But over the long haul, if you are investment focused you should do better with unit trusts or with your own investments.
My suggestion is therefore to buy the highest amount of sum assured that you need and can afford but pay only for protection - ask your agent/ bank salespersons to take away savings element. You will save alot on premium and can invest those seperately, e.g. in ASN funds.
I can say with certainty that there is no insurance plan still being sold in the market that can guarantee more than 4% in yield to policyholder at the moment - most can hardly manage more than 2-3%. Even if you add in non-guaranteed bonuses, the yield is usually no more than 6-7% per annum. Any plan that does far better (based on sales illustration) are most likely either mispriced or perhaps left on the shelf for too long, being priced perhaps in the days when FD can hit double digit return. In either case, you should not touch that insurer with a mile-long pole!
The nastier scenario would be that many people are misled by the term "return" when approached. Check - you will most likely realise that the return is on sum assured, NOT premium paid. As some of you might realise only too late, the total premium you paid over time for such savings plan have a tendency to exceed sum assured by quite a margin. The REAL measure of performance is yield on your premium - and that's where reality usually bites (by which time your agent might have jumped ship having collected his/her hefty commissions for six years)
I have left out investment-linked plans here because they are a different kind of animal all together. Perhaps next time. But I will leave with this: READ THE SALES ILLUSTRATIONS CAREFULLY, ESPECIALLY THE FINE PRINTS
DISCLAIMER: I am not saying that all insurance agents who primarily sell savings plan are crooks. Most of them are genuine believers of the plans, some are even actually giving sound advice. As said above, they do serve a purpose and can be suitable for some. But the reality is that in the pursuit of commissions on the humungous premium that are paid, many agents tend to paint too rosy a picture.
I work in the insurance industry - and I'm posting this out of my conscience. I welcome constructive criticism and alternative points of view, but please do not insult/attack me without proper research beforehand. I only ask for that. Peace out =)
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