Thursday, June 5, 2014

Insurance Saving Plan, Really That Good?

After many months of resting, I am back in action.

Today, we shall talk about Insurance Saving Plan, is it really that good?

Let's look at an example from one of the Insurance Company.

No Right, No Wrong. It is just my personal opinion. It depends on ones' priority and objectives.

Looking at the, obviously self created, table above, the term is 5 years. Sum Assured for the plan is RM110,000. Premium per year is RM43,975.

Characteristics of this plan:

  1. First to 5th Policy Year, client will be entitled for RM6,500 yearly guaranteed cash payment. 6th to 19th Policy Year, client will be entitled for RM8,500 yearly guaranteed cash payment. Client can choose to withdraw or to keep it in the policy and at the end of Policy Year 20, the total accumulated Guaranteed Cash Payment will be RM249,586.
  2. There will be a bonus of RM7,403 at the end of Policy Year 20.
  3. There is another Non Guaranteed Bonus (which the agent says return depends on company's performance). If the return is as illustrated and no withdrawal is done, there will be RM51,545 at the end of Policy Year 20.
Therefore, after 20 years, the total payout will be:
RM110,000 + RM249,586 + RM51,545 + RM7,403 = RM418,534.

RM418,534 - (RM43,975 x 5 years) = RM198,659

Let's say we save in Bank FD, at a rate of 3.96%
Bank Rakyat Deposit Account-i

The return from saving in FD (3.96% per annum) is guaranteed at RM443,020.

Other than that, it is more flexible as the FD savings renew every year. Which means, if there is any emergency that requires you to do any withdrawal, there will be no penalty imposed.

Unlike the Insurance Saving Plan, if there is any withdrawal made in between 20 years, there will be penalty imposed (other than withdrawing the Guaranteed Cash Payment).

In my opinion, looks like Insurance Saving Plan is not that good after all.

Better stick with buying Insurance for the purpose of PROTECTION.


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