Wealth Management Pyramid

Wealth Accumulation

This stage in your financial plan includes medium to long-term savings and investments. Once you have your cash flow under control and the essential needs covered, it’s time to shift to a higher gear in your financial plan. On the wealth accumulation stage, you need to set up the following:

SAVINGS

INVESTMENTS

 

Unit Trust is one of the most convenient investment tools to be used at this stage. There are various types of unit trust you can invest in to address your medium and long-term financial goals like retirement and educational funds.

Take note: Be extremely careful to research before plans are made. There are a lot of “investment opportunities” that seem too good to be true when presented but not trustworthy at all. Investors can’t afford to be too careless when making such decisions. Reading up and understanding better about investments are ways to go to avoid such traps and become a real educated investor.

Savings

While these plans are usually for long-term financial commitment, this length varies from just a few years to decades.

Insurance savings plan allows you the flexibility to decide how you would like to be committed to the plan. You can save small amounts for a long period or large amounts for a shorter duration. Most of the savings plans allow you to receive a lump sum payout upon maturity of the policy.

An insurance savings plan is a financial product for you to grow your savings over a fixed period of time. It is one of the more attractive methods as it can provide stable and relatively high financial returns for your commitment.
Unlike a savings account, where you can withdraw money at your discretion, an insurance savings plan is more structured and requires you to commit to the plan that you bought for a fixed lifetime. 

Are there investment risk or returns in insurance savings plan?

It depends on the type of plan that you purchased.  
For insurance savings plans that are non-participating, there is no investment risk and returns are fully guaranteed.  
For insurance savings plans that are participating, there will be some investment risks and returns are not fully guaranteed.    

Key Benefits

Able to choose your premium payment term

You will enjoy the flexibility of choosing a premium payment term from a single premium and regular premium term of 5 to 30 years.

Customise your plan’s policy term

You are allowed to customise your plan’s policy term from 10 to 30 years. 

Lump sum payout at maturity

Receive a lump sum payout at the end of the policy term

Financial protection against death

You will receive a lump sum payout upon death.

Capital guaranteed upon maturity

Your savings are safeguarded from market volatility and you will be guaranteed to receive what you have invested when the plan matures. 

 

Savings plans are useful for those who need to save up towards an important goal with a specific time horizon. This includes future education, house or even retirement. Be sure that you purchase savings plans that are in line with your comfort level and be committed to it.

Investments / Investment-linked Policies (ILP)

ILPS is designed to provide the dual benefits of life insurance coverage and investment opportunities that come in two different forms:

 

Single Premium ILPs

Where you pay a lump-sum premium to buy units in a sub-funds. Most single premium ILPs provide lower insurance protection than regular premium ILPs.

Regular Premium ILPs

Where you make monthly payments. Regular premium ILPs may allow you to vary the level of insurance coverage you need. 

How does ILP work?    

The premiums that you pay are used for these two purposes:

  • Invest in investment-linked funds 
  • Purchase insurance coverage 

Investment returns are based on the performance of your chosen sub-fund. So you would need to select one that meets your investment objectives and risk profile. There are a range of ILP-sub-funds to choose from. This is to suit the different investment objectives, risk profiles and time horizons an individual would have. You also have to bear the full investment risk, and there are no guaranteed returns for ILPs

Your premiums are used to pay for units in one of more sub-funds of your choice. Some of the fund units you purchased are then sold to pay for the costs of insurance and administrative charge, while the rest remain invested.

ILPs provide insurance protection in the event of death or if included, total and permanent disability. Depending on the policy, the death or TPD benefit may comprise the higher of the sum assured or the value of the units in the sub-fund at that point in time or some combination of the two. 

The value of these units depends on their price, which in turn depends on the sub-fund’s performance. This is why ILPs usually do not have any guaranteed cash value returns.

Why should you invest in ILPs?

Flexibility to adjust coverage

With ILPs, your ILP funds your insurance coverage. So, increasing your covers comes down to selling more funds to buy more insurance. The downside is that you will decrease your investment but on the other hand, you are increasing your coverage without paying higher premiums. 

Free fund switches

You will be offered free fund switches within the list of sub-funds offered by the insurance company. Usually, switching funds involve redemption fees (selling) and subscription fees (buying). 
Fund switches are useful if market conditions change. You may also top up your investment and make partial withdrawals.

 

Risk Associated with ILPs

Investment risk

Returns are not guaranteed. The value of an ILP depends on how the sub-funds perform in the market. While ILPs project higher returns, they do not guarantee that rate. Investment risk is borne by the policyholder.

Insurance coverage chargers

The cost of insurance rises with age. As we get older, our risk of developing diseases and conditions also increase.

Over time, your units bought with your premiums previously may no longer cover your insurance cost.  To maintain the investments, you can resort to reducing insurance coverage.

It is vital that you take note of a few considerations before purchasing an investment-linked policy and ensure that you buy an ILP that is suitable to address your needs and risk appetite.