Tan Kin Lian's Blog: Get a better return on your savings

Tuesday, June 22, 2010

Get a better return on your savings

Many people still rely on life insurance policies as an important form of personal savings for the future, either for their own retirement or for their children. They may save 10 to 15% of their monthly incomes. The accumulated savings over a working life could amount to $500,000 or more.

It is important that they avoid insurance policies that take away a large part of their accumulated savings. This is stated in the column "effect of deduction" in the benefit illustration. I have seen many benefit illustrations where the deduction is 40% or higher. This is excessive. If the accumulated savings is $500,000 and 40% is taken away, you are left with only $300,000. Surely $200,000 is too much money to give away?

This will make the insurance agent and insurance company rich, but the policyholders poor. In many cases, the maturity benefit may not even keep up with inflation!

The "effect of deduction" is explained in my book, Practical Guide on Financial Planning. It also contains tips on the types of investment to avoid, such as structured products and unrelated investment products. It also advice you to invest in low cost investment funds.

If you wish to invest in a life insurance policy, as you are not familiar with other types of investments, you must make sure that the effect of deduction does not exceed the benchmark shown in my book. The benchmark depends on the period of investment.

Spend $12 and 12 hours to be educated. Buy and read the book.

5 comments:

Anonymous said...: None of the par life insurance plans from any company can be called a saving plan.They are losing saving plans. Most policyholders lost because they couldn't keep up with the premium.
A good saving plan is one which accumulates at a rate that is at least 5% inflation adjusted. It is LIQUID and you can have access to it ANY TIME. It is yours and you need NOT borrow your own money and pay a hefty interest. It should break even after a few months after overcoming the low charges.You can stop anytime and resume anytime you like without any penalty.
You should look for these criteria before saving . Life insurance was never and is not a saving plan. It is a scam if it claims it is.; June 22, 2010 4:05 PM
Anonymous said...: I suggest someone take the lead and get MAS to ban such products as they are proven to be so bad according to the calculations.; June 22, 2010 4:42 PM
Anonymous said...: Anonymous said...

I suggest someone take the lead and get MAS to ban such products as they are proven to be so bad according to the calculations.

June 22, 2010 4:42 PM
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MAS already said that it doesn't judge the merit of the products.In other words the insurance companies can distribute any products they like although they have to conduct due diligence.If after conducting the due diligence the companies can market them. Whether the products benefit the consumers is not MAS's business .
Very often insurance agents say that the products have been approved by MAS doesn't mean it has given an endorsement.What it means is that MAS is INFORMED of existence of the products.
The products can be a con or scam It is responsibility of the consumers to open their eyes when buying.The problem is consumers don't buy they are sold. It means consumers are accosted by the insurance agents and conned into buying the rotten products which MAS doesn't seem to care.Consumers must share the responsibility which is one of the 6 tenets recently released by MAS. So in other words the toilet cleaners must be equipped with some knowledge of life insurance as good as the agents NOT for buying but before being sold by insurance agents so that the toilet cleaners can make informed decision. If the toilet cleaners don't know the products then don't buy.This is on the premise that you don't buy what you don't know. This is true but ALL consumers didn't buy but SOLD whether they knew or not the products. Do you agree that all consumers bought with the knowledge of the products ie. had enough and understood the information given to him or her and that the sale was made on an informed decision basis?
Anecdotal evidences prove otherwise. The sales were based on TRUST. Trust is a double edge sword. If you get insurance agents you are finished from the start because they are NOT COMPETENT as financial product expert even they can be honest.They are only at best salesmen.. On the other hand, a dishonest and incompetent insurance agent will help himself or herself to the wallets of their clients.
Well, in this area MAS is also not interested if you care to analyse the 6 tenets released recently.MAS die die wants caveat emptor as the basis of any financial product sales.
So, where got hope for consumers?
The charlatans and the rogues and the incompetent will be out in full force again.; June 22, 2010 6:14 PM
Anonymous said...: In the last consultation paper one of the issues of concern was customers' savviness.It is called customer knowledge assessment and it is ONLY applied to complex products. In other words all other financial products like life insurance, unit trust, ILPs etc there is no need to assess the level of knowledge the customers have. Put it another way all buyers of life insurance , UTs, ILPs are assumed to be savvy and there is no need to find out whether they know or not.If this is the case it is fantastic news to insurance agents because they can push products without having to ascertain whether the customers understand and make an informed decision or not, right? After all they are savvy and they should be able to follow the presentation and make a decision based on the info.So , the toilet cleaners have to make sure that they know the fundamentals of investment and insurance because they will have to bear all responsibility if things go wrong. The agents disclaim liability and so is the company.Indeed the financial landscape is a mine field and if not careful the consumers will be blown to peices and no recourse for redress.; June 22, 2010 7:41 PM
Createwealth8888 said...: Get a better return on your savings through investment and not through insurance.

Know the basic differences between Saving, Insurance and Investment.

Each of these serves its own purpose and requires different set of awareness, attitude, knowledge, and skills to be successful and don't confuse one for another.

http://createwealth8888.blogspot.com/2010/03/saving-life-insurance-and-investing-2nd.html; June 23, 2010 7:50 AM