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Which Is Better – Endowment or Investment-Linked Savings Program?

Everybody is greatly encouraged to save for their future, and one of the common methods of saving wisely is to start a saving program with an Insurance Company.

Traditional Endowment And Revolution To Investment-Linked Plans

An insurance savings program is nothing uncommon and if I can guess correctly, somewhere, somehow, some time back, your parents could have started one of the traditional Education (monthly savings aka Endowment) program and will mature by the time when you can proudly call yourself – An Adult (upon reaching 21… ummm… the good old days)

Until the recent 5 or 10 years ago, we started seeing the revolution of the traditional method to one of those saving into a investment-linked unit trust funds to help you achieve potential higher returns but subjected to higher risks (does that sound familiar?)

Buying Term And Investing The Difference…

Then came the famous tag-line: “Buy Term and Invest The Difference

And what is a Term Insurance Plan? Basically, it’s a plan whereby you pay a rather small premium to cover yourself against, commonly, Death or Total and Permanent Disability for a huge amount. Most importantly, do not expect to get any returns from this plan. It’s simply setting aside some money for a piece of mind.

The Difference, here, is basically what one may set aside some money for getting a whole life protection plan. In this case, you are substituting the whole life with a Term and now with the difference, you are saving into a Investment-Linked Funds Program.

My View, My Observation and My Opinions

In general sense, it’s true that an investment-linked savings program will generate a higher returns for anybody, as compared to an endowment plans in long run.

In reality, the above statement only holds true when one monitors the performance of their invested fund every now and then. There is always an option to do a switching of non-performing/stagnant funds to a better one to ensure that the money is continuing to work hard.

Personally, I have came across two good scenarios of the good and bad side of putting your money into an investment-linked funds.

Scenario #1:

Mr. X has put his savings into a unit trust fund (mainly equities but of good sounding). Nobody was monitoring the performance for him for the past 34 years. His servicing agents came and go, like the passing wind.

One fine day, he came to me and enquired about his fund. Lucky for him, I was proud to disclose to him that his savings had grew from a very small amount ($4,000, 34 years ago) to $44,000+ (as of today) – an average growth of 7% p.a. If he has put into an endowment plan, with conservative returns of 3.5% p.a, his returns would only be $12,000+.

Scenario #2:

Mr. Y, younger than Mr. X, has also invested his savings into a unit trust (mainly equities but rather a young growing fund) for the past 15 years and was thinking of withdrawing some money out. Nobody was monitoring the performance as well. He has put in around a total of $10,000+ into the fund, and as of today, the fund values are only worth $6,000+. As you can see, his loss is around $4,000+. The future performance of his fund is unknown. My advice to him, is either to hold on or do a switch from now.

If he has put the same amount into an endowment plan, with the same conservative 3.5% p.a returns, he could be seeing $16,000 back. His invested fund has been on a huge decline for the past 5 years and if he did a switch to a on-par bond fund, the returns would be on a stable positive note and even higher returns as compared to an endowment plan.

What You Can Take From This

Simple, if you are seriously in growing your money, its always wise to take on a plan with an insurance company for higher returns as compared to banks.

Endowment Or Investment-Linked?

It’s true that “Buy term and invest the difference work”. It’s also true that Investment-Linked funds will give potential higher returns and the returns depend on your risk appetite for bonds and equities.

My advice is that if you are into investment-linked funds, you do have to learn how to monitor your funds. The reality is harsh, there are not many agents who will stay put in a insurance company for long and some are commission-oriented. Once they switch companies, stopped receiving commissions, there goes the “free monitoring services and relationship building” as well. End of day, you have to depend on yourself.

If you do not really see yourself, having the efforts, time, time frame like at least 30 years, to monitor your funds once a while, stick to an endowment plan. Though the returns are conservative, at least the returns are there.

Remember: Financial Planning like savings goals is all about catering to your own needs and objectives.


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