Group Term Insurance sample reviews

A few years back, there was only ONE sensible Group Term Insurance which is the one that has been offered by Public Mutual since many years ago. But when I recently look for more choices, I found some nice surprise equivalent offers if not better ...

Etiqa-Public Mutual offers Group Term Life with PA at the following premium

Plan	Table Of Benefits		ANNUAL PREMIUM
	Term Life	Personal Accident
A	50,000	50,000	RM170.00
B	100,000	100,000	RM340.00
C	50,000	N/A	RM152.50
D	100,000	N/A	RM305.00
E	150,000	150,000	RM510.00
F	200,000	200,000	RM680.00
G	150,000	N/A	RM457.50
H	200,000	N/A	RM610.00

in short it is RM 327.87 protection for each RM 1 you pay. The terms are pretty standard as a group term insurance. However, if one day you are no longer holding any of their mutual funds, your coverage will stop automatically too.

MSIG -Stand Chart Individual PA offers RM 492 for 1 million so it is RM 2,032.52 protection per ringgit. But it only covers very specific damages by accident. If you die like Teoh BH or die while detain in ISA, no payment shall be made. Death not caused by accident is NOT covered too.

e-insuran offers quite interestingly easy-to-use build-your-own protection ...

RM 150,000 Life for RM 285

RM 150,000 Personal Accident for RM 142.50

RM 150,000 Critical Illness for RM 307.50

Add all 3 coverage together, 5% tax and RM10 stamp duty would need a premium of RM 773.75 => RM 193.86 coverage per ringgit. But you need at least 5 person to be entitled for this 'group' insurance.

Great Eastern - Public Mutual offers Mutual Life Plus 2,

Plan	Sum Insured	Annual Premium
1	RM100,000	RM 550.00
2	RM200,000	RM 1,100.00
3*	RM300,000	RM 1,650.00
4*	RM400,000	RM 2,200.00
5*	RM500,000	RM 2,750.00

which is RM 181.82 coverage per ringgit.

Group Takaful could be interesting but there is no rate info online.

Sadly speaking, none of the above can be purchased online with a click with credit card. Almost all of them has convoluted, tedious and rather no-service oriented purchase process. There was an old saying ... insurance without agent tried not to pay no matter what, insurance with agents will try to pay for those who claim first.

Please be reminded that Term Insurance has no saving element so its best to adopt buy term invest the rest in your portfolio, else the longer it runs, the less advantage you have.

Also don't forget the trick to become an insurance agent yourself to save the commission to yourself ..

The most long lasting business model

If not mistaken, it was 2,300 BC and 4,500 years ago (no, not a mistake, these are the actual years).   Once upon a time ...

Caby  is a smart man, he understands human nature very well and decide to make a fortune out of it.  Today he is only focusing on the 'greed' part.

He collects $1 from every man he meets and promise to pay half of them $2.  At first, people have doubts and only a handful people join.  But when half of them are paid double the money they put in, words start to spread and everybody rush in like no one business.

Although it was clearly implied that another half will get nothing out of the $1 they paid, but soon the other half start to compalin that this is a scam.  Caby is a smart man, he starts to alternate paying another half of the people double the return.  As far as the people concern, they pay $1 twice and they are guarantee to get back $2 in second round anyway.  So the worst is break even and if 'luck' is on their sides, they can get paid $2 for the $1 they put in.  They can stop playing and immediately earn 100% return !

But who is happy with $2 ?  Illogical but true enough, everyone realize they will keep on playing and all they will ever get is a break even, but everyone still think they can earn 100% return.

You are breaking even at best but

you still think you are winning 100%

at the same time

Finally, the business model works and sustain itself.  Caby is a smart man but he hasn't earn a single cent doing this yet.  He is calm, he waits, for the real phase to kick in.

Finally Greed kicks in.  $2 is not enough anymore.  People start to demand higher pay out.  Caby is a smart man, he starts explaining how the system work.  That if higher payout is made, less people will get paid.  People agree.  People still want higher pay out.  4, 8, 16, 32 ... very soon you start to see games like 3D, 4D, Magnum all over places.  By now, the size is just too big that people cann't keep track of who play and who get paid.  Caby is a smart man, he knows exactly how the money flow and start to get his share out of this whole business model.  As long as there are people, this business model will continue and Caby is a rich smart man.

That is not the end, that is not even the main part of the story yet ... the story starts when there are some smart people among the players.  They start calling this business model gambling and saying all the bad effects it can bring.  Despite that it is a bad thing they say, they didn't say we should stop totally.  They just say we should regulate it.  Normally people would say, "Bad ! Don't do it !", what kind of people would ever say, "Bad, do it under my control, then its ok" ? - - -  Yeap, Politician.

After regulation or in another word, under the umbrella of the protection of a country, this business model grows even bigger and sometimes its an international investment event around the globe.

Ok, now back to the good guys who say don't do it.  Which is also the juice in this story.  Caby is a smart man.  He said to these anti-gambling guys, "what if I pay out according to who need it most?"  Good guys ponder a little bit but after a long haul of exactly what need is and how to determine who need it first etc.  They settle in.  Now the business model has changed and become ...

You pay $1 a day, 365 days a year and should you has the 'need' one day, you will get $100,000 !  Different group of good guys have different needs so many different kind of variation of games are put in place.  Some said the need is 'when I lost my income', others may say 'when I die, pay my family please'.

It turns out Caby is smarter than he think he is.  Now he has one business model for all the greedy illogical guys and another model for the good guys.  Both type of people think they are well taken care off.  As long as there are people, no matter if all of them turns saints or evil, Caby is a rich baster !

Its the most long lasting business models ever built ...

~ Caby is a made up word from 2 big nations, one still exist today, another is a legend.

Insurance, Good or Bad ?

The most confusing financial vehicle in this blog is probably the Insurane element.

Sometimes insurance was cursed here, sometimes this blog says you must have it ... Sometimes I say Don't Buy IT !   Then follow by Yea, You Should Sell Insurance ...  "what in the world is your REAL standpoint on insurace !?"

First of all, "Insurance" doesn't even make it to my wealth pyramid.

but then later I explain Insurance plays a 'supporting' role in protecting the goals you want to achieve or already achieved in life.  ( read here )

I also touch on the "return" of insurance by Comparison among Insurance, Fix Deposit and Mutual Fund.  Since my proposed solution in Personal Finance is to have your very own portfolio, on the insurance part, I propose Buy Term Invest The Rest. to get the best out of all from above comparison.  ( but not suitable for everybody )

I also highligh some of the pit-falls in today's insurance industry

1. Higher than FD insurance is A FAKE marketing talk ! ( case 1, case 2 )

2. But then sometimes it is possible ( case 3 ) with a twist in it

3. Trap in Investment Link Products 

and the solution is to invest monthly instead of yearly 

(but not for traditional insurance)

Then confusion starts when I put up quite a funny article basically saying, "Want to settle your bad debt ? Sell Insurance !".  When someone are in doubt, I even re-assure them with small talk.

So to sum all above up and hopefully can clearify somethings ...

Buy Insurance for Protection - Good !

Buy Insurance for Return - Bad !

Sell Insurance to earn Income - Good !

Don't forget I mentioned before Income is NOT a part of Personal Finance Plan.  So if you have faith in that, you wouldn't have this kind of confusion.  Buying insurance is a part of your finance plan, Selling it, is NOT !  It doesn't matter what the source of your income is, your life plan stay the same.

So recommending you to sell insurance has nothing to do with recommendation to buy.  Different rules apply in Income topics.  You need to be smart and hard working in generating income.  In personal finance, its ok to be dump and lazy when its done the right way - the simple way too.

You may also want to check out other related articles

Different Types of Insurance

The Most Cost Effective Insurance in zzzz !

Rich Dad  : 4 Types of Income

The 5th type of income Rich Dad didnt mention

small talk on insurance

A question came in and I thought it was quite fun so I share it out here ...

Asked :

may i ask why insurance and how insurance can really "sell"?

Answered :

everyone needs insurance, its just a matter of time when they will realize it. people who realize it earlier buy cheaper and people who realize it later buy more expensive, either way the insurance saleman earn more. ppl who never gets to realize that ended up dying with people around him realize the importance of insurance, so the next generation still buy insurance

Maybank : Premier Capital Income True Saver

full plan details at maybank2u site

This seems like the plan that break one of the rule of thumbs I have been sharing all along

All kind of guarantee plan will not have interest higher than FD rate

Lets take a quick look on what it offers

So basically if you put in $80,000 you will get $100,000 insurance coverage.  Assuming this insurane coverage would cost you $340, then effectively this plan is giving you a guarantee compound rate of 3.87%

Higher Than today's FD at 2.7%

If you don't really need the insurance or you don't want to consider that.  Then your effective rate is 3.44% return.

So the next time an insurance agent is selling you guarantee return plan, make sure you compare with this plan.

Even though this plan does BREAK my 1st rule of thumb but it didn't break my 2nd one.

I did say if there is a plan that can offer higher than FD rate, it will be closed down by Bank Negara very soon.  Indeed Maybank knows this very well so they say this is a LIMITED OFFER only and it will be closed down after 10 April !

If you read the detail page, it also say Fund Size 150 million.  So effectively this is really NOT an insurance plan.  This is a Mutual Fund comes with combined insurance coverage.

Another derived message you can get out of this plan is that the largest bank in zzzz is telling you that they think your mutual fund can easily give you a guarantee return of 3.8% in 8 years time.

Which is kind of a no brainer because 8 years from now, the stock market will most probably peak at its next bull run.

Just in case you did miss the 10 April deadline, don't worry, this kind of plan is always available at

http://safepay.com.my/ins101.asp

only without the word "guarantee".

Get Out Of Bad Debt

I briefly touched on how to reduce bad debt in a case study about a middle income guy.  And most of us are the Average Joe, so no doubt the questions of How to Get Out Of Debt persist.  Furthermore, there is a book saying that 21st century is all about Debt.

Ok, lets start with the boring, "You shouldn't have got into bad debt at the first place !"

Sorry but Honestly, personal bad debt is a pure mistake on greed and ignorance.  Bad debt is not a personal finance problem.  Its the opposite of personal finance.  As mentioned before, the only thing you MUST do in Personal Finance is to setup an automated saving system right after your income.  Bad debt is the reverse !  By using up more than your income even before the income comes in.

That would be the FIRST thing one must understand, realize and FEEL it !  Else it is not going to be any helps in reducing bad debt.  It will just come back again and again.

Secondly ofcourse we can blame it on the education we received.  Off the 12 long years of FREE and compulsory education, we didn't learn a single thing about bad debt, not to mention automated saving.  Although its not a personal finance problem, it is a global trend and it becomes a national problem where it affects our daily social life.  Crimes rate increase.  You lose job, I die.

Ok, now that we take responsibility of the problem and we get someone to share the burden, we can now look at it face to face.

The problem originates from Income, so the real solution is within income as well.  But before that, lets review some of the common advices :

1.  categorize debt by different interest rates

12-18%  Credit Card or Ah Long debt

4-8%  Car Loan ( car's actual rate is 1.9x of published rate )

5-7%  House Loan

2.  work on the highest interest rates category first

including transfer all the high interest rate loan to lower rate like using house loan to pay for credit card debt

3.  within the same category, pay off the smallest amount first !

4.  call up banks and ask for waiver or reduction

other than that, there are some uncommon methods and services offered by private agency.  Basically they work around these methods:

1.  Pay a little more monthly, cut down total number of years to save on total sum

2.  Instead of paying 18% to credit card, borrow from them and you pay only 16% etc.

3.  Changing interest calculation method from daily rest to monthly rest etc.

It is possible to have some businesses out there sincerely come up with plans to help people reduce debt.  Afterall, the ultimate benchmark for world best stock investors is only 15%.  So it makes more sense to run a Ah Long business than starting a company like Warren Buffect's  BERKSHIRE HATHAWAY

However there are more businesses out there taking opportunity out of these ignorant debtors and further exploit them to the limit by squeezing every penny out.  So my advice is approach these agencies with care, only work with those who can provide you clear figures / numbers how the system works and then you send the figures to me for verification.

Most countries have also setup proper agency to provide similar helps like above private ones.  That is a must know for poor debtors.  In zzzz, you must go to AKPK personally and ask them to help you face to face.

Ok, lets get back to this blog.  Just a reminder that all above are the common methods debt adviser would have shared with you.  They are effective ... to contain the problem, not really solving it.  This blog stresses that personal bad debt is NOT a personal finance problem.  Its problem is from income and the solution is to work on income.

So what you really need is to focus on Getting More Income to pay off the debt.

No one can go back and change a BAD beginning 

but everyone CAN create a successful ending !

And you bet double the effort is needed to correct a small mistake.

Some may curse by now what a stupid recommendation. 

"If I could earn more money, I wouldn't be in this debt at the first place !!"

Well, thats why and how this article is written.  You must first admit and take resposbility for your own mistake, then you can also blame someone for it and now you should face it to solve it yourself.  Including thinking positively how every single suggestion comes in, despite how stupid some of them may sound.

Fortunately, there are proven methods on how to increase income to solve debt.  All you need is as mentioned above, expect double extra effort to come.

Statistically 3-5% of people who started a business end with great finance success.  The unique difference in this 3-5% of people is their smartness and ability to adapt to changes.  Lets face it, how smart we are is something imprinted within us.  Its not something we can change overnight.  By the time we are as smart as we should be, debt rate has already compounded to sky level.  Afterall, if we have the smartness in us, we wouldn't have reach this bad debt situation anyway, would we ?

On the other hand, people who 'join' a human network business has 20-30% success rate.  Off the other 70% who didn't make it even though they are in the same human network business as those who make it, is because they didn't spend enough effort on it.

A Human network business that you can 'join' includes multi level marketing, insurance and mutual fund agents.

If you are serious about solving your bad debt which you admit was a mistake on your part.  Then you better focus on increasing your income.  And if you don't know how to increase income on your own.  You better temporary forget about all your preception on MLM and insurance agents.  Join them and really spend a good amount of effort on it for 2-3 years.  I guarantee you will solve your current debt problems.

Forget about morale, forget the right thing to do, forget about helping others, you have to even forget about finance planning as a matter of fact.  Your focus should be on solving your debt and you are just 'working' toward it.  You don't have to 'like' your work in this case as long as it can get you off this bad debt which is killing you.  You probably don't like your current job anyway.  And since you are already in bad debt, you probably been brain wash by some incorrect ideas.  So what's wrong being brain wash by this MLM and insurance ?  While your brain is already filled with get into bad debt procedures.

After all, both income and bad debt is NOT a part of personal finance planning.  One is the pre-requsite and another is the oppositive.

Among the 3 choices above, insurance is the safest and best choice if you don't know which to pick.  

Although MLM is  perfect in concept but in practical world, MLM is still new and there are still a lot of bad apples in MLM industry.  Since insurance industry is older and better regulated, there are really no BAD insurance companies out there, there are only less good choices.  Mutual fund is more toward finance planning or investment ideas, immediate and short term reward on mutual fund sales are less encouraging.  So to sum all up, insurance industry is the most suitable human network business for people to join to reduce their debt.

Take an example to solve a $20,000 bad debt.  You probably need to make a total sales of $60,000.  Assuming each sale is $2,000 then you will need to make 30 sales.  In order to make 30 sales, you may need to make 150 attempts.  Assuming each attemp needs 4 follow ups, then you need to prepare for 600 sessions of work.  Assuming each session is 2 hours, you will need to spend 1,200 hours in order to solve your $20,000 debt.  Now, if you spend 3 hours a day, 7 days a week, your debt can be settled slightly after a year. 

If above example is not acceptable, then you will need to have the smart in you to entrepreneur about how to get the extra income you need.  But just to beware, the 'smart' you think you have in you may be is the 'smart' that gets you into bad debt at the first place.  Just beware ... but don't let any wild imagination stop you when pursuing income.

Lastly, if you setup an automated saving system, then you are more likely to solve your bad debt problem too.  Exactly why would probably require another long topic on human psychology.  But in short, setting up such a saving system implies you already solve the 2 most original fault in bad debt, greed and ignorance.

Good luck all, I know this is a tough topic and not many people will agree but nevertheless its already proven solving many bad debts again and again.  Although these people never come back and help me propagate the right finance planning ideas, but they did get their debts solved.

Allianz Power Saver Guaranteed 4% = 0.28%

note : updated content found at the bottom of this post 

Copy from Lowyat forum that :

Allianz Power Saver gives guaranteed 4% interest return. Every year invest certain amout of money on it and on the 5th year, the 4% return will be given out. Maturity of 30 years For example,

For RM100,000 sum asured (Every year payment of RM20,000. So total of RM100,000)

So in the 5th year, payment of RM4k will be given out for 26 years. So total collection of RM104,000 over the years.

Hmm wondering if this power saver is really the best in the market? For sure it is a lot better than the current FD rate.

If I understand it correctly, then it should be like below spreadsheet.



click here to view the spreedsheet

It is like you save into a Fix Deposit who pay you 0.28% interest rate ONLY !!

Far from 2.X % that is paid by most banks now ! Not to mention the calculation above is compounding yearly while real FD accounts compound monthly

Ofcourse they will pay you more money at the end of 30th year. That will boost up your effective interest rate but want to bet ? As shown in earlier posts in Capital guarantee plan ? and 2,400 get 800 = 33% ? Whatever the guaranteed maturity value is, the final effective rate will be less than 3%.

any kind of insurance guarantee return policy will provide you slightly less than FD return at that point of time !!

do correct any of the info here if mistake found, all confrontation welcome for the good of all.

Blogged with the Flock Browser

---

2009 03 13

Allianz personel showed up in the forum above and provided more info and complete picture.  First of all this is the full illustration provided :

One very important fact shared is that the life coverage in this plan is a Reducing Term Average which means the life coverage reduces as it approaches the end of 30th year.  I can safely assume the Sum Assured is $100,000 and as the SA reduces, the guarantee $4,000 pay out will eventually make up to the reduced Sum Assured.  So sum it all up, you will get back your $104,000 whether you die early or you don't die at all.

If you scroll to the right in the spreed sheet at the beginning of this article, this plan basically gives a 2.93% to 3.47% non guarantee return.  Although its NOT guarantee but looking at today's recession ( entry time ) and a period of 30 years ( exit time ), its almost no brainer this return can be easily paid out as promised.  So not exactly as FD but can be as safe as FD.

I hope this exercise benefits some people.  First of all, guarantee return is usually not able to be higher than Fix Deposit.  2nd of all, we cann't really assess a plan correctly until we get the full info and quotation.  As mentioned by this blog before, analyse the actual numbers, not the rate published by the promoter or sellers.

Apply Dollar Cost Averaging in Investment Link

Investment Link plans deduct your investment units in order to pay for insurance coverages.  It was mentioned in last post that this is not good for you because it goes against the concept of Dollar Cost Averaging.

However, its actually NOT "ALL" bad.  As I mentioned before, one would really need to analyse with the real numbers and not just depend on a bare concept.  Lets look at this particular case.

Current way of deducting units is GOOD in an uptrend market.  Basically you buy more units initially and then deduct less units as the market price goes up.  However it is VERY BAD in a down trend market.

And ofcourse the insurance company HAS TO assume their investment would continously be going up when they are convincing you to buy it.  That is why they calculate the units the way they are !

Calculation Example : Annual Payment RM 2,400.  Monthly deduct RM 100 for insurance coverage.

You may think the insurance company should deduct the money first and then only invest to the units.  That way it would be like Dollar Cost Averaging, isn't it ?  Well ... slightly better but still NOT stable enough !

If you do that, you would just get a similar effect except it is BETTER in down trend market but WORSE during up trend.

Refer to above summary table, you can see that during up trend its better to deduct units to make payment;  However during down trend, its better to make payment first and then buy the units.  Either way, you are still widely open to market risk. 

The TRUE dollar cost averaging application in this situation is to invest your money monthly and NOT yearly !  Since the insurance company is going to deduct the insurance coverage fee monthly, there is really no reason for you to prepay your premium without interest.

In short, when you buy an investment link policy, you should set your payment mode to Monthly !  That way, it doesn't matter if the insurance company deduct the units first or pay the coverage first, you would most probably always get the same amount of investment units !

In above example, you will always get 816.39 units no matter if the market goes up or down !

This example shows that Dollar Cost Averaging is a simple concept and easy to execute but sometimes can be overlooked and become very confusing.  The 3rd part ( if ever published ) may explains why we have such confusion.  Which venture a bit into the philosophical side of Financial Planning and Human Nature.

One of those traps in Investment Link Insurance

You probably know investment link insurance has many elements in it.  One of the elements in it is ofcourse insurance coverage.  While you can buy the 'cheapest' insurance coverage through investment link, do you know that your 'investment' element is badly affected in order to pay for the 'cheapest' coverage ?  

Investment Link is a type of products you should consider if you do not know much about investment.  And if you do not know much about investment, you should at least know Dollar Cost Averaging.  Lets review Dollar Cost Averaging and Buy Low Sell High concept !  Basically you accumulate more units during down trend and less units during up trend.

In investment link policy, your annual premium is NOT directly credited into your account.  It will first be used to deduct your protection charges monthly.  The protection charges may remain the same but the way it is calculated is NOT a dollar to dollar deduction.  It will use the market price of your investment to deduct the number of units in order to match the premium payment.

 For example;

Premium Payment Needed	Market Price	Number of Units Needed
$100	$1	100
$100	$2	50
$100	$0.50	200

So instead of deducting $100 consistently from your account, it is deducting the number of units.

You can see that during a down trend ie. when market price is $0.50 you lost 200 units.  And during an up trend ie. when market price is $5 you lost only 50 units.

So instead of accumulating MORE units during down trend,

 you LOST more units.

In long run, you are strategically put into a 'losing' position while the insurance company has a HIGHER chance to earn MORE of your money.  Because you are getting into a position that is OPPOSITE of Dollar Cost Averaging !

Below shows a Sample of an actual detail list of an invesment link policy, click on image to view in bigger  size.

If all these are true, so what should we do about it ?  read Part 2

Most Cost Effective Insurance in zzzz

If you are buying insurance for the first time or considering topping up protection to your life, there are some facts you should know :

1. each product ( insurance, FD, Mutual Fund) has its own strength ( see this post )

2. a hybrid product may give the best of both worlds

  2a. some hybrid products are called "Link" products  ( read here for varies type of insurance )

  2b. if you build your own hybrid, its called Buy Term Invest The Rest 

Not by conincident, 2a is usually offered by insurnace companies while 2b is usually offered by mutual fund companies.  Its just a matter of approaching the same purpose from 2 different angles.

If you are in zzzz, I would like to share with you A number : 328 !!

You can 'buy' a life insurance of MYR 328 with MYR 1 only !!

Therefore a MYR 50,000 Life insurance would cost about MYR 150 / year !!

So whatever extra cost you are paying for your insurance, you should expect them to provide you extra services and / or provide a good investment return.  Else you will need to relook into your portfolio because you are paying too much for your own ignorance.

note : 328 is the number for group term life and TPD protection only, its the most fundamental and simplest element I can find in local insurance industry here.

Compare by numbers, not the rate

Sometimes ago I share a "Capital Guarantee Investment Link Insurance Plan" that sounds almost perfect :

. Your Investment Capital is Guaranteed to increase even at Bad times,

.  At good times, you will get all the extra returns,

.  Free insurance covers.

There were 2 scenarios shared in that post 

1) When market drops, you get back $139,200 out of the $120,000 you invest in.  And this $139,200 is paid out monthly in next 20 years.  If you run the numbers, you will discover this is equivalent to a compound interest rate of 0.75%.

That's right !  Instead of 5.8% or any big return numbers you see, the actual rate of that deal is 0.75%.

2)  Like wise, if your investment is accumulating at 6% for the first 20 years, then the whole 40 years plan return rate is actually 4.08% !!

However, don't be too negative yet.  Insurance is not All About return but its main objective is about Protection ( read this old blog ).  So if you really want to compare with a FD rate, you should deduct some amount from your saving to buy an equivalent insurance protection.

The above plan's protection is $84,000 Sum Assured.  Someone quoted me a Term Insurance of $505 for that.  So I should deduct out $505 from my $6,000 yearly saving (see Buy Term Invest The Rest method) and then see what return rate do I required in order to get paid $580 monthly from 21st to 40th year.  The return rate is 1.55%.  So its not as bad as 0.75%

Likewise, in good time, the return needed is 4.73% and not 4.08%.

If you think someone has eaten your pie, that is true but lets be fair.  These pie eaters also helped you reduce some hassles;

1. No need to seperate payment of $505 to insurnace company and then the rest to other company,

2. No need to worry about the timing of payment,

3. No need to get different quotes, different analysis from different parties

etc.

So they get paid for all these work they did for you.

And you ... your decision is whether you want to pay someone to do the job for you.  If not, then you better buckle up and do all those work yourself.  Don't ask for both world ... pay nothing and ask for all the services ...

Buy Term Invest The Rest

In one of the old post I shared how to best use of your money among insurance, fix deposit and mutual fund ( click to see old post).

Basically it says if bad thing happens within the first 5 years, insurance is the better choice because you get $100,000+ while your FD/Mutual Fund saving is only starting to accumulate at $10,000+. However for the next 10-20 years FD and mutual fund are clearly better choices because they are more flexible and provides better returns, $300,000 and $600,000 respectively.

So the answer is to build your own portfolio !

I went back to insurance company P and asked for a Term Insurance quotation for $100,000 which costs only $313 a year for 5 years. So I minus out $313 from my yearly saving $17,920. On year 1-5, I would only save $17,607. And because I am greedy so I pick mutual fund over Fix Deposit as my saving vehicle.

Wa lah ! If I die within the first 5 years, I will get more than $100,000 which is slightly more than the insurance plan earlier - actual amount would be $ 119,016 even for the 1st year where $100,000 paid out by the Term Insurance, and the rest is from my own saving.

If I survive through the 10-20 years period, I will still have all my saving plus its earned interest !!

Best of BOTH WORLD !! Isn't it ?

This is called

Buy Term Invest The Rest

Capital Guaranteed Saving ...

Nowadays, more and more people complains about drop of their investment value.  This would be a good learning experience that you may not be able to take the risk you thought you could ...

A few days ago, I came across this Capital Guaranteed Saving Plan by Prudential called Pru-Retirement something.  May be this kind of plan is suitable for those who cann't stand recent market crashes ...

click on the image to view in bigger size

Basically this example is like this :

1.  You save $500 every month for 20 years.  So you have save a total of $120,000

A - if market drops

2a. If market crashes and your investment value is less than $120,000 then the Guaranteed value is $120,000

3a. This particular plan adds some extra value to the $120,000 so what you get is actually slightly more than what you have saved, ie. $139,200

4a.  As a result, the Minimum you will get back is $580 every month for 20 years !!

B - if market is good

2b. If market is good and your investment value worth more, ie. $230,000 or 6% increase every year.

3b. Calculation is the same except your capital is now higher.

4b. In this case, you will get $1,111 every month for the next 20 years - comparing to your initial saving of $500 only.

The good things about this kind of plan are :

. You will NEVER lose less than what you have put in !

. Better still, you will at least get back slightly more than what you put in !

. In good time, you still get to Earn More with the up trend !

Super Great and Perfect isn't it !?  Well, do your homework, future post will re-look into this kind plan with its pros and cons.

Insurance vs Fix Deposit vs Mutual Fund

Insurance

I search around and found this, one of the best Endowment Insurance Policy I can find.  

Just a reminder that "Endowment Insurance" is a type of insurance you go for when you are aiming at SAVING !  ( read old post for more info )

Basically this plan says if you save $18,000 for 10 years, you will get $300,000 by the year 20th.

That is about D O U B L E your investment, not to mention the F R E E benefits you get from the insurance side.

There is a GUARANTEE payment of $100,000 to your loved ones should you not live through the period ...

Fix Deposit

If you save the same amount of money every year for 10 years .... you will have $18,547 by the end of 1st year ( assuming 3.5% Fix Deposit rate ).  That alone, is triple of what you get on above plan.  Like wise, every year onward is ALWAYS higher than the insurance plan above.  

Pink graph is Fix Deposit @ 3.5% and Blue graph shows the return from insurance return above (P).

By the end of year 20, both FD@3.5% and Endowment Insurance provide similar returns at $300,000

Mutual Fund

My personal past 15 years of mutual fund return is 8-12%.  So lets says my next 20 years of mutual fund return is at 8% ... 

Yellow graph (return M) shows the potential mutual fund return ...

A whopping of $600,000 return by end of year 20 !!!  That is D O U B L E again for the other $300,000 !!!  By Doing NOTHING but choosing a different finance tool !!

So from the perspective of saving, Mutual Fund and Fix Deposit are clearly better option ...

However ...

Should things don't go as planned and you are no longer able to save ( passed away ), the insurance will pay $100,000 immediately in year 1 comparing to $18,000-$20,000 on the other 2 options.

So from Unexpected Incident point of view, Insurance clearly win over Fix Deposit and Mutual Fund.

At the end, what should you do ?  Answer to be revealed soon but actually has been hinted before ...