Savings Plan/ Insurance first?

[hernancrespo]

Hi guys,

I've recently stepped into the working world, and thinking of getting either one of the above-mentioned. Which one do you guys think is the one that a mid-20s guy should get first? Insurance for its lower premium, or savings plan?

With regards to savings plan, anyone here has any? Which company's savings plans are considered the best in your opinion? I've talked to Prudential and HSBC advisers; and the difference that I garner from that is that HSBC offers the full guaranteed amount of your amount saved (100%) but with a lower projected yield at maturity. Prudential, on the other hand, only offers 60% guaranteed returns on your savings, but has a higher 'projected' maturity yield, but subject to economy performance etc...

Any opinions or differences that any of you bros know of?

Cheers!
A guy trying to plan for his financial future

 

[xiaoevil]

if you haven't had the habit of savings, it's good to start the savings plan first accompanied by some term insurance (which has option to convert to whole life policy before maturity).

Savings plan or investment is up to your risk tolerance. If you have longer time horizon and don't need the guaranteed portion at specific years, Prudential will give you higher returns upon maturity.

 

[Darkzi0n]

personally, i think that saving plan do not give the best return for a investor.. unless u are after 100% sum guaranteed and the yield is better den a 10 year singapore government bond which is ard 2% now if im not wrong. Also, do look out for any additional/hidden fees tht might eat into you profit even if its jus a small percentage. these small % tgt with compounding effects will mean alot in the long term.

 

[hernancrespo]

xiaoevil: but I heard from my friend that Prudential's higher returns is projected and consists of a "performance" component that has never been declared in its history.. So the amount that they put forth in the proposal is actually a little rosy and not realistic? I'm not sure if this is the case..?

darkzion: hey thanks! but I just started working and thus won't have much liquidity at all... is it a suggestion to save up on liquid cash and invest?

 

[HandsTied]

Hi guys,

I've recently stepped into the working world, and thinking of getting either one of the above-mentioned. Which one do you guys think is the one that a mid-20s guy should get first? Insurance for its lower premium, or savings plan?

With regards to savings plan, anyone here has any? Which company's savings plans are considered the best in your opinion? I've talked to Prudential and HSBC advisers; and the difference that I garner from that is that HSBC offers the full guaranteed amount of your amount saved (100%) but with a lower projected yield at maturity. Prudential, on the other hand, only offers 60% guaranteed returns on your savings, but has a higher 'projected' maturity yield, but subject to economy performance etc...

Any opinions or differences that any of you bros know of?

Cheers!
A guy trying to plan for his financial future

A young working adult's priority should be ensuring positive cash-flow and emergency savings first, and shortly thereafter insurance. It is prudent to get oneself properly insured first before moving onto things like wealth accumulation.

Every single insurer in Singapore with the notable exception of a single company has cut bonus over the years in Singapore. Savings plans are perceived to be "safe", but it is only as safe as the underlying assets that the savings plan's Participating Fund is invested in. Pru's Par Fund has about 30% in equities, 50% in bonds and 20% in other assets. It is a rather conservative portfolio for a long time horizon. HSBC's Par Fund is even more conservative, almost 100% in fixed income instruments. This explains the various guaranteed amounts and projected values they are offering. In any case, if a Par fund does well, insurers take a cut before giving you a return. If it does badly, they still take their cut before giving you a return.

Moreover, savings policies can pose a liquidity issue. There is loss upon early termination (http://sethwee.com/2011/07/20/cash-value-policies-why-are-there-losses-on-early-termination/) due to high upfront costs. If you stop paying premiums, the plan will terminate and you will likely make a loss on your capital, or you might be forced to borrow on the cash value you have accumulated whereby you are charged a high interest of 5-6% p.a. If you select endowment plans with some liquidity feature (cash back option), the already poor yield you get suffers even more.

There are much better ways to invest that doesn't require high capital or very good knowledge. People who don't have the capital nor ability to invest directly can use tools like unit trusts to help them invest. It typically comes with higher charges than investing directly, but the charges are much lower than that of an endowment policy. You are also able to invest a small monthly amount, and choose your own asset allocation to fit your needs. It is also a lot more flexible and liquid than an endowment policy.

 

[xiaoevil]

xiaoevil: but I heard from my friend that Prudential's higher returns is projected and consists of a "performance" component that has never been declared in its history.. So the amount that they put forth in the proposal is actually a little rosy and not realistic? I'm not sure if this is the case..?

darkzion: hey thanks! but I just started working and thus won't have much liquidity at all... is it a suggestion to save up on liquid cash and invest?

It depends what your friend are referring to. There are many bonuses declared by insurance company - Reversionary Bonus, Performance Bonus, Maturity Bonus.
The insurer can choose to lower the bonuses declared yearly but increases the Maturity Bonus so that you stay loyal till maturity.
Bonuses declared less than 5.25% p.a. does not mean your total return will be less than 5.25% p.a. upon maturity. Maturity Bonus actually make up a huge part of your total return and must be taken into account for.
If the insurer earns more than 5.25%, it would not give you more but add it into the maturity bonus (or on hold). Likewise if it earns lesser, it may still pays 5.25% and deduct from whatever good years they earned. It is only when there is prolong lower profit than expected, would the insurer cut the projected maturity amount.

That said, if you want to take control of your money growth, you have to create your own portfolio like what many would suggest in this forum. But if you don't have the time to even research on it, savings plan is a good start. Add some term if you on budget. The best is if you can go for both savings and insurance. If you are looking at Prudential's, it would be PruLife Limited Pay and PruFlexiCash.
Do take note you have no liquidity for first 2 years.

 

[jack81]

darkzion: hey thanks! but I just started working and thus won't have much liquidity at all... is it a suggestion to save up on liquid cash and invest?

If you feel that you won't have much liquidity, then by taking up the saving plan wouldn't that deprive you of even more liquidity?

Then you must also look at the other side of the coin, if you do not do your monthly budget and spend as much as you earn of course you will not be able to save at all hence the savings plan will come in handy as a forced saving tool for you thereby ensuring that you will be able to save a tidy sum of money after 10 years.

 

[Cashcow]

Insurance premium will go up as u age so it is always to get it done earlier.

Savings can always do later as u save $1 means $1. Not affect by age.

 

[Cashcow]

Steer clear of whole life n investment link policy. Lousy coverage n high premium.

Use term to settle yr protection needs. U won't regret by following this advice.

 

[HandsTied]

Steer clear of whole life n investment link policy. Lousy coverage n high premium.

Use term to settle yr protection needs. U won't regret by following this advice.

Generally, separating insurance and savings/investments is a good tip to follow. Another good rule of thumb is to stay away from tied agents (agents representing single companies), non-independent financial advisers who sometimes misrepresent that they are Independent, and banks.

Tied agents can only provide products and solutions their company offers, which either means a portfolio with missing essential coverage and/or overpriced policies. Non-independent financial advisers and banks have special arrangements with insurance companies to sell certain products over others.

Independent Financial Advisers (IFA) minimise the clash of interests the most. Of course, due diligence and prudence still have to be taken in choosing an IFA for your own benefit.

 

[kenneth27]

Do a lot of homework before you buy
Or else you regret your life
Trust no one in life
Because this life is yours!

 

[cscs3]

Recently many insurance start to call up, many do cold calling. Business must be bad.

 

[limster]

I agree 100% with the poster who said that when younger, free cashflow is important. Do not 'lock in' your income into products that you cannot 'escape' from without large penalties. To me, this is why term insurance makes sense. For an outlay of a few hundred dollars a year when younger, you have term coverage for several hundred thousand dollars.

 

[lee_tired_sheep]

Recently many insurance start to call up, many do cold calling. Business must be bad.

or you gave out your nnumber without realising

 

[FP_IFA]

Recently many insurance start to call up, many do cold calling. Business must be bad.

Yesterday I got a cold call from a debt collector asking if I need help to collect debts. LOL!

 

[cscs3]

or you gave out your nnumber without realising

No way. Believe they have other ways.

 

[cscs3]

Yesterday I got a cold call from a debt collector asking if I need help to collect debts. LOL!

And some kind of call center claim to representing ERA too.
When are we going to set up some privacy rule like other country?

Many may no know some of these agent actually get the # from the softcopy CD gave by Teleco.

 

[iAdvisor]

Generally, separating insurance and savings/investments is a good tip to follow. Another good rule of thumb is to stay away from tied agents (agents representing single companies), non-independent financial advisers who sometimes misrepresent that they are Independent, and banks.

Tied agents can only provide products and solutions their company offers, which either means a portfolio with missing essential coverage and/or overpriced policies. Non-independent financial advisers and banks have special arrangements with insurance companies to sell certain products over others.

Independent Financial Advisers (IFA) minimise the clash of interests the most. Of course, due diligence and prudence still have to be taken in choosing an IFA for your own benefit.

Well said.

Slightly differs from Handstied is that I do not agree in building up cash flow or savings before getting insurance.

We can't predict our future, we can't stop mishap from happening while building our cash foundation. To me hospital and protection insurance should always be the first priority in your expenses. If you can't even afford $100 mthly to pay insurance, how can you afford to pay those medical bills?

Of course we have to work on a comfortable amount for insurance as well. Can't afford a lifeplan now? Go for a term plan instead (with convertibility option). Term plan still too expensive for now, go for shorter term, eg 5year renewable term with convertibility option. As such your monthly financial burden will be low, but still with adequate coverage. Discipline your spending, and aim to do up a proper financial plan in afew years time.

IMO, savings plan should be something used to diversify your savings, not investment. The returns are too low, but much better than deposit.

 

[kenneth27]

We can't predict our future, we can't stop mishap from happening while building our cash foundation.

Well said.

A well planned investor diversify his portfolio
So does one who just started out
He too divide his income into different portion
Nimble, patiently, he accumulate wealth and health


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Whatever causes stress are unworthy of clinging

 

[Lucas_]

the question should first be, what is more important to you?

Returns or Protections?