There are proponents who claim nobody got rich by having a number of policies; on the other hand there are those who advocate savings and market forces are the way to go to build wealth. But then there are those canny individuals who don’t want to be seen putting all their eggs in one basket. Choice is always a tangle between what is considered reliable and what may be risky.
It is not always the case that life insurance is better than a savings / investment account. As with everything financial, there are pros and cons – and it’s always a good idea to keep up to date with current events and sentiments.
Points to ponder
- With a savings account, you do retain the ability to access your money whenever you like. But therein lies the danger from which a policy should protect you. There is always the chance that you may be tempted to deplete your nest-egg before its useful time. Whereas with a policy you are signed up for a specific time period and are strongly advised against trying to extract early money from this growing account.
- Another advantage to a savings account is the freedom to miss payments. You are free to choose how much you invest, and when, and how long you might leave it. However, if you miss a payment on your life insurance, you may be fined or even have your policy cancelled, thus losing everything you have paid in to date. Those monthly debits create their own useful pressure.
- An endowment policy is essentially a term life insurance policy which pays out a lump sum at the end of the term, but is additionally attached to an investment angle which helps to build the pool more definitively than a straightforward life insurance; it pays out a hopefully worthwhile investment value when the insurance comes to an end. In this way endowments can provide excellent middle ground, the best of both worlds.
- Some people feel that life insurance can be a waste when it has served its purpose at the end of term, and you wave goodbye to all those premiums, even if they have provided a valuable safety net for 20 years or more. For this reason, many choose the endowment route to ensure they have a cash injection to look forward to.
- Using your life insurance policy as a form of investment is a sensible approach. Although, as with any investment, there is risk. However, if you are dealing with a reputable company you will enjoy a level of professionalism that can make this option highly attractive.
- In addition, you will also enjoy dividends on the investment aspect of your policy, and this adds to its value over the years.
- If you choose to rather use your money to build an investment portfolio and forego the idea of a life insurance policy, you will need to be prepared for the work involved: research time, keeping an eye on matters daily, managing an array of stock, etc. You will have to devote time and energy to your investment project, as well as continually upgrading your knowledge. If you’re busy, or the subject matter doesn’t captivate you on a daily basis, then opting for an investment-linked life insurance is probably your better bet. Growth may be slower, but it may also be surer. You might make less, but you’re less likely to lose more.
Maximising financial security through both life insurance and savings
Everybody should be planning for a rainy day, so setting aside some savings is a good idea. You never know when you may need some cash in a hurry, so having everything tied up in policies can hinder you. Life insurance though, does cover you with the big issues such as death in the family or loss of income; it will keep you covered in ways that your savings may not be able to manage.
How easy would it be to pay off your bond in a hurry, should you need to. Or your credit card for that matter. Your home, your family and your job are generally irreplaceable should misfortune strike at any one. Life insurance experts recommend a policy payout equal to 7 – 10 times your annual income, which is far more than most people can save. By balancing savings with life insurance, you can keep your family covered now and into the future.
There’s no doubt that you may well earn a higher rate of return faster on the stock market; after all it has proven the highest rate of return of any asset class. While the rate of return on your life insurance policy is possibly only a third of the stock market, it does depend on the terms of your policy and how long you own it.
While the stock market has a higher return than permanent life insurance, it is also a riskier investment. The market fluctuates every year, and you need to ensure that you choose good stocks. On the other hand, returns on whole life insurance is guaranteed by the insurance company. If the market does badly, the insurance company still pays you your annual return out of its cash reserves. While you might be gaining on the stock market, you are also paying taxes on your gains. With a permanent whole life insurance, taxes are delayed until you withdraw the money.
Your whole life insurance policy or endowment policy is definitely an important part of any balanced portfolio. Your motto should always be: invest, save and plan for the unexpected.
Check your policies, check your life
Verifi is an online tool that provides you with an immediate and up-to-date overview of all your life insurance and investment policies by sourcing information from all the major life insurance companies – and presenting the information in a comprehensive report.
With Verifi you are able, for no charge, to access information on all your life and investment policies at a glance. You are able to check the types of policies you have, the names of the insurance companies providing the cover, the nature and extent of the insurance cover provided – and other vitally important information such as the details on your policies being correct.
To find out more, please visit: www.verifi.co.za