Friday, June 27, 2014

Are Insurance Companies Scamming Us Too?

Hi all,
This article, Plight of the 'sophisticated investor', published on 27 June 2014 in The Straits Times, written by a typical investor in Singapore who has invested part of his savings in endowment insurance policies for the last 20 years, only to find out that his "profits were just a tiny fraction of what was projected 20 years ago".

Read the article, and I guess most of you will find that getting an insurance to grow your savings will sound like a scam to you. Maybe it doesn't sound that bad as Genneva gold, gold guarantee or Profitable plots scams, where you can't even get your money back.

But anyway you were still smoked by these insurance companies "rosy projections", only to find out that you were cheated of your feelings when you received miserable returns on your investment 20 years later. Moreover if you want to take out your funds midway through the insurance plan, you might even have to suffer some losses or negative returns.

This sounds to me like... if you want to grow your money or nest egg, do not put it in insurance! 

I would rather put my funds into stocks, property or the STI ETF. Even putting your funds into STI ETF through OCBC, POSB or Phillip share builder plan to do dollar cost averaging (DCA) over the longer term, could give you better returns than unit trusts, plus you can liquidate it within a few days without penalty. But if you invest too small an amount monthly, the fees that you are paying for will not be worth it.

Investing into the right stocks & properties for yourself also require investment knowledge in these areas which we should continuously learn and find out if you do want to properly manage your own funds.

Finally, I guess I wouldn't be opening any new endowment plans any time soon. I would rather put in other investment vehicles that I understand and have more control over my investments. But one should not be complacent as it too comes with more responsibility. But it is not too hard to do as well. 

Also importantly, do make sure you have sufficient insurance plans to cover your basic needs such as hospitalisation, critical illness & disability plans. You would not want any unforeseen circumstances to wipe off your hard-earned savings & investment returns. 

On another note, there is no need to over-protect, or over-cover yourself by paying huge premiums which I realised that some of my friends do. This could result in yourself having not enough left to invest in your financial future. There are ways to calculate how much you really do need to insure yourself. 

Make sure you leave the rest of the money to work harder for you, which you can already start to do at any age whether you are young or old, by taking a step at a time.

Do feel free to comment if any.