Grow your retirement nest egg
Retirement plans may not strike a chord with young investors. However, it is never too early to start saving for retirement. By selecting the appropriate wealth management platforms, including those providing financial protection, one can get a head start in achieving one's wealth goals and securing a comfortable life during their golden years.
Investment-linked insurance
The relatively modest returns of low-risk products may not match the expectations of younger investors, who tend to prefer fast returns and are willing to bear higher risks in exchange for higher returns. We have observed more young people joining the investment fray in recent years, growing their wealth through monthly investments in stocks, funds and similar products. While it is good for young people to invest early within their means, they should not neglect their own protection needs. Should an unfortunate accident result in the loss of ability to work, this will derail all of one's financial plans, not to mention the encumbering medical expenses involved.
Investment-linked insurance products allow young people to start planning for their retirement savings. A hybrid of insurance and investment, they fall under the family of insurance solutions, but differ from traditional life policies in that they emphasise investment returns.
Policyholders of traditional life insurance pay a premium and the insurance company provides protection in return. For investment-linked insurance products, premiums paid by policyholders are used to purchase unit funds of their choice, and the returns are reflective of the performance of the funds.
Products are now more investment-oriented
Investment-linked insurance products have evolved over the years. In the past, policyholders of these products were guaranteed a fixed amount as their life protection. In the event of death, the policy's beneficiary would be entitled to claim this protection amount or the total value of the investment funds, whichever is higher. Part of the monthly contributions made by the policyholder would be used to pay the premium, while the remainder would be channelled towards fund investment.
In recent years though, some investment-linked insurance products have become increasingly geared towards investment objectives. The protection amount offered by these products is represented by the value of the investment fund. The entire premium sum, after deducting administrative fees, is fully deployed into investment funds, such that policyholders can accumulate their wealth through dollar cost averaging. In the early days of investment-linked insurance plans, policyholders had fewer than 10 funds to choose from to invest in. Today, the number of investment funds available has surged to several dozen and even more than 100, covering a large part of the investment market.
Investing while enjoying financial protection
Some investors may argue that it is better to invest directly in funds as a way to grow their savings instead of going the route of investment-linked insurance plans. After all, banks here do offer quite a wide selection of monthly fund investment plans. Let me draw out the advantages of investing through insurance products.
First, the choice of funds underlying such monthly fund investment plans might not be as wide as investment-linked insurances. The transaction amounts involved in a monthly fund investment plan are also relatively small and the administrative fees comparatively higher. Hence, there are only limited funds to choose from in the investment market.
On the contrary, as insurance companies have contractual arrangements with fund houses, policyholders can use lower cash amounts to buy funds of their choice. Moreover, insurance companies will regularly review the funds portfolio, modifying the composition of funds to meet changing market needs. In terms of choice, investment-linked insurance products are superior in that they offer a better variety of funds.
In addition, a subscription fee is charged when funds are purchased. Over a period of long-term investment, adjustments to the portfolio of funds have to be routinely carried out in order to keep up with movements in the market. This involves the switching of funds which would, again, incur switching fees even when the changes are done within the same fund house. This adds up the ancillary costs for investment.
At present, most investment-linked insurance products do not charge their policyholders subscription or switching fees, nor do they limit how many times changes can be made to the fund portfolio. This provides flexibility for the policyholder. Although policyholders still need to pay administration fees on investment-linked insurance products, it is worth the while in return for the overall flexibility and wider choice of funds.
The best of both worlds
Perhaps most important is the protection provided by investment-linked insurance products. As young investors embark on their journey to grow their wealth, it is crucial to emphasise that personal protection should not be ignored even as they seek out the most promising investment platforms. Investment-linked insurance products are able to help them achieve the best of both worlds.
Most investment-linked insurance products provide not only life protection, but also other benefits such as waiver of premium on disability benefit and payor's benefit. With the waiver of premium on disability benefit, the insurance company will pay all future premiums on behalf of the policyholder until the end of the premium payment period in the unfortunate event that the policyholder becomes permanently disabled.
The payor's benefit, on the other hand, is tailored for policies taken out to cover a child aged 18 or below. In the event of death or disability of the payor, payment of future premiums will be taken over by the insurance company to ensure policy continuation, and to provide the payor's child with an extra level of protection. Both provide policyholders with peace of mind should he or she be unable to work due to disability.
by Walter de Oude, Chief Executive Officer of HSBC Insurance(Singapore)
source
Investment-linked insurance
The relatively modest returns of low-risk products may not match the expectations of younger investors, who tend to prefer fast returns and are willing to bear higher risks in exchange for higher returns. We have observed more young people joining the investment fray in recent years, growing their wealth through monthly investments in stocks, funds and similar products. While it is good for young people to invest early within their means, they should not neglect their own protection needs. Should an unfortunate accident result in the loss of ability to work, this will derail all of one's financial plans, not to mention the encumbering medical expenses involved.
Investment-linked insurance products allow young people to start planning for their retirement savings. A hybrid of insurance and investment, they fall under the family of insurance solutions, but differ from traditional life policies in that they emphasise investment returns.
Policyholders of traditional life insurance pay a premium and the insurance company provides protection in return. For investment-linked insurance products, premiums paid by policyholders are used to purchase unit funds of their choice, and the returns are reflective of the performance of the funds.
Products are now more investment-oriented
Investment-linked insurance products have evolved over the years. In the past, policyholders of these products were guaranteed a fixed amount as their life protection. In the event of death, the policy's beneficiary would be entitled to claim this protection amount or the total value of the investment funds, whichever is higher. Part of the monthly contributions made by the policyholder would be used to pay the premium, while the remainder would be channelled towards fund investment.
In recent years though, some investment-linked insurance products have become increasingly geared towards investment objectives. The protection amount offered by these products is represented by the value of the investment fund. The entire premium sum, after deducting administrative fees, is fully deployed into investment funds, such that policyholders can accumulate their wealth through dollar cost averaging. In the early days of investment-linked insurance plans, policyholders had fewer than 10 funds to choose from to invest in. Today, the number of investment funds available has surged to several dozen and even more than 100, covering a large part of the investment market.
Investing while enjoying financial protection
Some investors may argue that it is better to invest directly in funds as a way to grow their savings instead of going the route of investment-linked insurance plans. After all, banks here do offer quite a wide selection of monthly fund investment plans. Let me draw out the advantages of investing through insurance products.
First, the choice of funds underlying such monthly fund investment plans might not be as wide as investment-linked insurances. The transaction amounts involved in a monthly fund investment plan are also relatively small and the administrative fees comparatively higher. Hence, there are only limited funds to choose from in the investment market.
On the contrary, as insurance companies have contractual arrangements with fund houses, policyholders can use lower cash amounts to buy funds of their choice. Moreover, insurance companies will regularly review the funds portfolio, modifying the composition of funds to meet changing market needs. In terms of choice, investment-linked insurance products are superior in that they offer a better variety of funds.
In addition, a subscription fee is charged when funds are purchased. Over a period of long-term investment, adjustments to the portfolio of funds have to be routinely carried out in order to keep up with movements in the market. This involves the switching of funds which would, again, incur switching fees even when the changes are done within the same fund house. This adds up the ancillary costs for investment.
At present, most investment-linked insurance products do not charge their policyholders subscription or switching fees, nor do they limit how many times changes can be made to the fund portfolio. This provides flexibility for the policyholder. Although policyholders still need to pay administration fees on investment-linked insurance products, it is worth the while in return for the overall flexibility and wider choice of funds.
The best of both worlds
Perhaps most important is the protection provided by investment-linked insurance products. As young investors embark on their journey to grow their wealth, it is crucial to emphasise that personal protection should not be ignored even as they seek out the most promising investment platforms. Investment-linked insurance products are able to help them achieve the best of both worlds.
Most investment-linked insurance products provide not only life protection, but also other benefits such as waiver of premium on disability benefit and payor's benefit. With the waiver of premium on disability benefit, the insurance company will pay all future premiums on behalf of the policyholder until the end of the premium payment period in the unfortunate event that the policyholder becomes permanently disabled.
The payor's benefit, on the other hand, is tailored for policies taken out to cover a child aged 18 or below. In the event of death or disability of the payor, payment of future premiums will be taken over by the insurance company to ensure policy continuation, and to provide the payor's child with an extra level of protection. Both provide policyholders with peace of mind should he or she be unable to work due to disability.
by Walter de Oude, Chief Executive Officer of HSBC Insurance(Singapore)
source
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