It had been some times since i last blogged. Recently i have been busy with both work and personal stuff but it has been very fufilling. Hence today decided to spend my rest day to stay home to write on my views towards certain financial planning matters.

First of all, i like to touch abit on saving plan. Many people that i spoke to have agreed that saving is good but the only problem is that there are so many saving plans out there for them to choose. So the question is whice one is suitable for them? Therefore this is what i am going to address over here.

Generally there are two types of regular saving plans with guaranteed return (endowment): one belongs to the type where u need to pay for the whole of the term period (Eg: 20 or 25 yr) while the other type is the limited payment period. For the latter, it is designed in such a way where by you pay for a certain short period (eg: 15yr) and you be only getting back your money in another 5 or 10years time. 

Which is good and who should buy these type of plans? In a nutshell, i would highly recommend that savers go for the limited payment period whereby spender should start off with the normal regular saving where he/she needs to pay for the whole period. The reason behind is that such plans normally allows cashback flexibility, which means that they can allow to withdraw partially of their money, from 2/3 yr onwards. Normally for people who does not have a saving habits or fearful of uncertaintly, such benefits would appeal to them more. In fact, it is more suitable for them. However do take note that generally this type of saving plan does not comes with high interest.

Here is an illustration: Male. non-smoker, anb 28, occupation: Bank officer, decides to save $250 per month. So what plans will provide him the most money?

Supposed the guy takes the regular saving plan of 25 years. He will need to pay till age 53 years old and the total premium layout is about $74k. So guess how much is the total returns if he chooses to accumulate the cash back? If he opts for this option, the toal amount that he be getting  back will be $$110k. So this is the scenario where he does not take out any money along the way. However what if he needs money to use? Every year from the 2nd yr onwards, he be entitled $1825/yr to withdraw for personal usage. Let’s assume he needs the money every year till the maturity of the plan, he would have withdrawn $43,800 in total and left with $49k upon maturity.

Let’s move on if the guy decided to go for the limited pay saving plan. With the same amount being saved, he will be saving about $44k in 15 years and be getting back $95k in another 10 years time. Do take note that after 15 years, this guy is not required to pay any more premium and he only needs to wait for the plan to mature in order to reap the benefits. Of course if along the 15 years, the person really needs money, he has to either do a policy loan of 6% or surrender the whole policy. There will not be any cash back for this person to withdraw.

So what is your view on these two plans? Am i right to say that unless you are quite confident to be able to save this amount without touching it, the regular saving plan would seem to be a more feasible choice for you? =) Again i like to emphasize that in the long term, a limited pay saving plan would seem to be a better option for consumers. But sadly agents normally don’t promote it due to the reduced in commission. What is good for consumer is usually not good for agents! This is a well-known fact!

Therefore please do not blindly buy plans from roadshows as these people are just all out to get rich. There are still a minority of good agent at road show =)