Most of you probably know the importance of savings and diversifying your financial portfolio. You’ve probably even engaged a financial consultant or an insurance agent to help you get the relevant financial products, be it insurance or investments. But because most of us aren’t trained in Finance, we tend to only half-understand whatever is being sold to us. We spoke to a financial consultant with five years of experience in an independently-owned financial advisory firm, who let us in on some industry secrets …
1. Cost of Insurance
This is in relation to investment-linked plans. Many young Singaporeans opt for this plan as they think they are getting the best of both worlds: insurance coverage and investments returns. What many do not know is there is a yearly renewable term, which escalates the cost of insurance when the client hits the age of 55. Here’s why – as you grow older, your risk of debilitating diseases increase, hence the risk to the insurer also increases. At this point in time, there may be a possibility that a portion of your accumulated investment amount may be used to pay off the increased cost of insurance. So if you’re not aware of this and your financial consultant does not remind you to re-adjust your portfolio, you may end up with much lesser investment returns.
Conclusion: Before you commit to an investment-linked insurance plan, you need to be clear about what kind of results you want to achieve. If you’re buying into this plan as an investment, you’ll need to be prepared that your insurance coverage will decrease as you grow older so as to maintain your investment returns. If it’s for insurance coverage, you cannot expect to have high investment returns. In any case, it’s always recommended to diversify your portfolio with other programs as you grow older (and more affluent.)
2. “Guaranteed Returns” vs “Projected Returns”
This is in relation to long-term savings plans, such as endowment plans. Financial Consultants typically gloss over the guaranteed returns as this amount is always lesser than projected returns. What you must understand is, projected returns are subject to market conditions, and the projection is calculated based on the assumption that you have a constant return on investment every year, which is near impossible. It will be more prudent to see if the guaranteed amount is something you’re comfortable with, instead of being enticed by the projected amount (which you should view as more of a bonus, than a guaranteed.)
Conclusion: Before committing to a savings plan, always ask your Financial Consultant what the guaranteed returns are.
3. Agents with Ties
No, not neckties, but ties to a particular company. Agents that are tied to one company may try to sell you a product that’s not quite tailored to your needs, simply because they want to close the deal, or because they can get a higher commission from selling you a different product. It might be a better idea to shop around and get a feel of the products available on the market, so you’ll know what type of products suit your needs best.However, it can be exhausting (not to mention, confusing) to figure everything out on your own. This is why more and more people are turning to independently-owned financial advisory firms. Because these independent financial consultants are not tied to any specific companies, they can provide unbiased advice on the best financial products to suit your specific needs.
Conclusion: No matter which financial product you choose, there will always be a list of pros and cons. There is no perfect financial program. This is why it’s crucial to know what your intention is (save? invest? protect?) as well as the must-have features in a program before you commit to one.
To use a simple analogy, it’s just like getting married. No man is perfect … but you need to be certain what are the traits that are important to you and what are absolute dealbreakers. Everything else, you’ll have to learn to live with (and even embrace!)
About The Author: Vanessa Tai is a founder of Material World who has previously worked on magazines Simply Her and Cosmopolitan Singapore. Now a freelance writer and a full-time contributor to this website, the 26-year-old dreams of attending every single major music festival before she turns 30. Follow her on Twitter @VannTaiTweets.