In part one of Saving Plans: – What you might not have heard? we looked at the possible reasons why saving plans might be getting a bad rep. In part two let us look at the other side of the coin? Does saving plans have any merit then? Sure it does. Really it does! If we weigh in the facts properly it honestly does have its place. After all it’s a product that is controlled and approved by Bank Negara.
- It’s a good alternative to fixed deposit. It offers higher interest rate compared to fixed deposit, the trade off is that the funds are locked for a long duration. Premature termination of saving plans means that the customer will make a lost. So be sure to check that there is enough funds to last until the saving plan matures. A common mistake is to think that since the saving plan last only 5 years, I need only to save for 5 years and get a big windfall the following year. Not true. Saving plans do not make a person rich; they primarily function as reserves for the future. A good saving plan can give about 4.5% returns if compared apple to apple with FD over the long run. This will of course differ from plan to plan, just putting it out as a general reference. Moral of the story, if you are just parking money in the bank, moving from fixed deposit to fixed deposit, and do not like risk whatsoever, consider a saving plan.
- Able to peg in the returns. If you believe that fixed deposit rates are going down as the year’s progresses then you can consider a saving plan. In a saving plan you are guaranteed a certain sum each year regardless of how the economy performs. If you like the returns the plan is offering and would like to enjoy it in the future, saving plans are worth considering. After all if the returns from fixed deposits are higher in the future, you can always put the returns from the saving plans there.
- It promotes force saving. We all know saving is a good habit to practice. Easy to say, hard to do. Everyone knows that they should take a portion of their money, first save it up and then only spend the rest. But in a world where cash is moving so fast that is not easy to practice. This takes discipline. No discipline? Try a saving plan. They will gladly deduct it from you salary before you know it.
- It can’t be frozen. Saving plans like all insurance plans are protected under the Financial Service Act 2013 (previously Insurance Act 1996) and Perbadanan Insurans Deposit Malaysia PIDM. Meaning upon death of the life assured the money cannot be frozen and goes to the nominee straight. Just make sure there is a nominee! PIDM role is equally as important as it protects the policy owner’s benefits in the unlikely event of the failure of the insurance company.
- The payer waiver rider. This feature is what I feel makes saving plans a good consideration for a child’s education. Sure there are investments that offer higher returns? But does it have a guarantee or a waiver rider. This basically means that if a father purchases a saving plan for a child and along the saving years a mishap (death, total and permanent disability, 36 Critical Illness) happens to the father, the insurance company pays for the plan. Some company even refunds all the premiums paid!
In the end I don’t think there is a bad plan or a good plan, but rather did the plan suit your need? Everyone has different needs and goals and risk tolerance, so the right information needs to be applied correctly. Hopefully with more insight customers get the right product that they need and the fraud cases related to saving plans are reduced. Thanks for reading this lengthy article and have a great day!
Article contributed by a good friend, Jerry Low. For more information, feel free to mail him at: email@example.com