I will take this chance to introduce a concept called "Buy Term Invest

the Difference". This is not widely known or used because it is not

profitable for insurance companies. The commission is not attractive

enough for the agent as well as the insurance company. This explains

why it is not aggressively promoted by most insurance companies.

Buying a Term Policy costs you less compared to paying for an

Endowment Policy with similar coverage. With the balance of money

saved, you can invest it in the stock market yourself. A Term Policy is

not only cheaper compared to other insurance plans; it is also more

liquid, which means you can sell it anytime you want, instead of waiting

for maturity.

For example, you pay $1,000 a month to an insurance company for an

Endowment Policy. Part of the money you pay is to insure yourself;

the bigger portion is to be invested under the insurance company's

account. As mentioned earlier, winnings from the investment are tough

for you to track. Rest assured that most of the winnings go back to the

insurance company. Buying a Term Policy costs you much less, say $100.

This is because it purely insures you and does not have an investment

PRODUCTS 31

component that Endowment Policies do. You can then invest the

balance of $900 directly into the stock market yourself. Therefore,

instead of paying $1,000 for an Endowment Policy, you can get a Term

Policy (offering similar coverage) for $100 and invest the balance $900

into stock market, offering much more visibility to you.

The problem is most do not know how and where to invest this money.

Quite a handful want to invest the money in the stock market, but they

do not know when to enter the market. One option you can consider

is the Share Builder Plan (SBP). SBP is an investment cum savings plan

offered by Phillip Securities. It is a plan that allows you to buy stocks at

a regular basis by using a technique known as Dollar Cost Average.

With this technique, using the same amount of money, more shares

are purchased when the prices of shares are low and fewer shares are

purchased when the prices are high.

By investing a fixed amount of funds consistently every month over a

period of time, your average cost of shares purchased will be lower, thus

reducing the risk of investing a large amount in a single investment at

the wrong time. This technique is good for investors who are not good

at timing the market.

This is extracted from an insurance company and let us call it

insurance company P.

P company endowment policy

The table shows an Endowment Insurance Plan from P. The insured is

assumed to be 30 years of age (male/non-smoker). The insurance policy

term is 30 years with a yearly premium of $3,617.

For example, if the insured passes away at the age of 40, the premium

paid thus far is $36,170. Upon death, the insured is guaranteed $100,000

with a non-guaranteed investment return of $10,684. As such, the total

return would be $110,684.

If the insured passes away at the age of 60 or upon maturity of policy,

he/she will get back $156,354 in total, after paying a total premium of

$108,510. The insured ROI (return on investment) is about 44%.

The table below indicates what the insured will get if he/she chooses to give

up the policy. For example, if the insured wishes to give up the policy

at the age of 50, he/she will have paid a total premium of $72,340. The

insured's guaranteed and non-guaranteed returns will be $53,957 and

$10,092 respectively (assuming 3.25% investment return per year). His/

her total returns will be only $64,049, running a loss!

Surrender Value of P company policy

Next week , I will share with you how to ” Buying Term and Investing the Difference” .

Read more about this in my new book, The Systematic Trader . You can buy it now by clicking here >> The Systematic Trader.

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