I recently came across about these saving plans that insurance companies and some banks related assurance company introduced.
The basic idea is that you pay a certain amount every year, as small as 3000-4000 dollars consistently and you get back the returns after 20 years based on some guranteed rates and not guranteed rates.
The point is, these companies what they do is they will have your money, give you a basic insurance policy that covers your death and maybe some illnesses, use your money to invest with their "super intelligent staff" and get back a return high enough to cover your insurance policy, returns and some profits. Usually they give a return rates of higher than what the market is offering. They compare themselves with fixed deposits of banks and illustrates to you the case 20 years later.
For us recent graduates or fresh graduates, having a saving plan is important. But whether to save with them or not is another issue. Several concerns need to be considered here.
1. Do you have the investment skills and knowledge and LUCK to gain a higher returns than what they offer?
Of course, people always say investing in shares brings high returns, something to be considered is if you have the skills and time to research and how sure are you to gain the high returns. You could lose all your money and get -100% returns in some other investments.
2. What happens if somewhere down the road, you cant afford to pay the premiums required?
We fresh graduates like to change jobs every few years, what if there is an economy downturn or something that we get laid off? If we suddenly decides that we want to resign or change job for some reasons, what happens to the plan?
3. What happens when the company goes busted or doesnt even exist 20 years later ?
Some company has some back ups like the government which pays a minimum amount. Check this out.
4. What is the value of your return amount 20,30,40 years later?
Inflation is likely to kick in hard and your amount of money might not worth as much as you think it is now.
The plan introduced by an insurance agent friend is something like this. You pay about 3-4000 a year for 15-20 years, and you get back a large sum after 20 years. Likely to be around 2 times of what you have paid in. Then you continue to withraw a super small amount of money after the large sum upto you are extremely old.
My take is, this is not the best saving method, but no harm diversifying some of your savings into this kind of plan. After all, you should keep your money in different avenues to ensure you have a back up plan. And this, exactly will be my backup plan when i can afford it.
As of now, i have just started working and have my loan to pay off. Until i finish paying of my loan, i will start some saving plans. (note that the study loan charges higher interest rates than the returns, if the study loan you are in charges extremely low interest rate, it might be a good idea to have a saving while paying a minimum sum to the loan)
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