We often see in the news that people
save so much money in insurance savings plans for decades, yet end up losing
money in the end.
Is not that the insurance company
or the insurance agent is trying to scam your money. Is actually the plan itself doesn’t fit the purpose of saving at all. Which is why I never save in insurance savings plan.
First, it lacks the sense of emergency fund.
Insurance savings plan don’t allow
you to withdraw the money you have saved anytime you want. If you wish to make
a withdrawal, you will have to wait until the plan matures.
Withdrawal before the plan
matures, simply mean to surrender the policy.
Therefore, you can only withdraw based on the surrender value at that
time, which is probably less than half of what you have saved.
Imagine how desperate you could be
if you were in a critical situation and desperately needed emergency cash, then
you find out that you have to lose most of your savings when you make a
withdrawal from insurance saving plan. That's a double loss, isn't it?
People often ignore the
possibility that they might need emergency funds in the near future, until
trouble comes. So, they thought they won’t withdraw until their savings become
fruitful after ten or twenty years in the future.
Low rate of Return.
Problem is, saving money on
insurance savings plan isn’t always very fruitful. We all knew that the longer
the investment period, the higher the risk, and thus the higher the return.
However, insurance savings plans
typically require a long period of time, usually 6, 8, 10, or 20 years, yet the
rate of return is lower compared to other investment and saving schemes.
The return is only about 2% to 3%
per annum, which hardly counters inflation. The worst-case scenario is when the
insurance's investment underperforms, causing you to lose money even after the
insurance savings plan matures.
Next, losing money from the moment you start saving.
Insurance savings plan is just
another one type of life insurance, meaning there are insurance costs involved.
Part of the money you save each
year is deducted for the insurance fees, as well as the insurance agent's
commission for 6 years. Which explained why you can’t get most of your capital
back if you withdraw within the first few years.
This literally means you have lost
money right from the beginning when you started to save. Why you need to pay a
huge cost just for saving money?
Lastly, insurance savings plan doesn't meet most people needs.
Some insurance agents explained
that insurance savings plan is a contingency plan for in case death or
disability hit you first before you reach your saving goal. But if that is the
case, we could just buy a normal life insurance & leave our saving on other
schemes which offer better liquidity & return.
Remember, buying insurance is for
protection, savings should be for emergency, and investment is for making
money. Different purposes require different tools to achieve the best results.
