As I approach my first step into the working world, I feel that I should be fully responsible for my own financial health, and not left to others to tell me what to do about it.
In 20 May 2015, age 22, I purchased PRUflexicash, which was marketed as a savings plan to me to “beat the bank’s pathetic interest” as well as possibly beat Singapore’s inflation rate. Furthemore, I can choose the yearly 5% cashback option if needed(e.g. graduation trip).
Financial education – learn now or pay later
Today is the day I embarked on my own financial education and realised that this policy is actually a an endowment with an insurance component. Certain things that were unclear to me in the past are becoming more lucid now.
For example, I couldn’t understand why the guaranteed sum is only 57.5% of my principal amount, – Nani, isn’t a savings account supposed to preserve my money???
After trawling through the policy document, I found the holy grail: “PruFlexiCash is not a savings account”.
This phrase was found on 2 pages of the document. Sadly, I only remembered looking at some paragraphs in a few pages before signing 25 years away.
Also, the projected returns on the benefit illustration usually shows an optimistic projection, in reality the returns are lower. Furthermore, if I understood correctly, it shows the performance of the participating funds made by the company, not the actual returns that the policy holder can expect to receive.
A quick reading shows that putting money into a government-backed bond(Singapore savings bond) is better(in terms of liquidity, guaranteed principal) than an endowment plan for the purpose of “saving”, and the insurance component can be sorted out with a term policy.
My opinion of the insurance industry is generally negative.
I believe that many financial consultants are unable to act in the best interests of their clients due to the inherent conflict of interest with the earning potential.
What may be seen as the best for the clients, such as products with lower commissions(term insurance) considerably lowers the FCs’ income. Furthermore, it is not surprising that they are only trained on high commission products.
The standard protocol to close a deal is to draw a timeline and do a projection on the returns in X years, jump right into benefits illustration for a clearer picture, go through only the pages that requires the customer’s signature while other pages are unimportant.
I believe this is the main reason why many customers “didnt read the terms properly”, and come to regret it years later.
We could argue that the cow comes home, whether it is the failure on financial consultant’s part to be fully transparent, the greed and ignorance of policy holders, or something in between.
The only real safeguard we need to have is to be able to handle the psychological and emotional pressure that many financial consultants exert on us when trying to convince us that everything is done in our best interest, not very different from people running MLM businesses in terms of the business model.
The only commandment to follow is: If you don’t understand something, don’t buy it.
Since then I have learned from these experiences and am now competent in the department of defense against the dark arts.
Plan well – knowledge is power
I believe that insurance is important to safeguard ourselves and our loved ones should unexpected incidents happen.
The onus is on us to be educated in financial products by reading up and discussing with people in order to make informed decisions, and follow the golden rule of thumb: never buying anything you are unsure of.
In our information age, there are abundant discussion and analysis regarding financial products by finance professionals, bloggers, and other self-taught people. With this, we can more self-sufficient, responsible, and be aware of the things to look out for when encountering the “real deal”.
With a variety of online brokerages available, investing is now more accessible to the layman.
Personal plans moving ahead
I am looking to get adequate insurance coverage(illnesses, death) and take savings and investments elsewhere(bonds, stocks).
I am also considering to surrender the endowment policy at the end of 4th year, getting around 50% of the 5k premium paid.
A “savings” plan is supposed to be low risk, in my opinion a guaranteed returns of 57.5% of principal doesn’t reflect that.
I am able to take the loss of 2.5k, and treat it as a life lesson to be fully responsible for my own life.
My main goal is to be in greater control of my own savings and investment dollars.
I don’t like the idea of locking up my money for 25 years, during which several incidents can and are likely to occur such as the financial consultant retiring after making enough, jumping ship to rival company.
As a result, a new FC will be assigned, who has no incentive to provide financial advice because technically we are not their customer, and the cycle of being (hard)sold insurance products repeats again.
More often than not, the consumers are on the losing end. Therefore, I wish to remove these unnecessary burden and stress from saving and investing with insurance companies, and start out with low investment products such as government-backed bonds, stocks ETF.
At the end of the day, it is about finding the right financial products to meet our needs. Just like I would visit a GP for acute injuries or problems, I wouldn’t seek fitness advice from them, that’s the playground of personal trainers. Similarly, I will get adequate insurance coverage from insurance companies, but won’t put any dollar with them for wealth accumulation.
- Understand the objectives of your financial planning.
- Do the due diligence, get educated on the different types of financial products.
- Understand what you buy. If unsure, don’t buy(this is the best policy, honesty being second).
- Do not mix insurance and investing.
- But it might be suitable for people who wants absolutely no hassle in financial planning, and am able to deal with the possibility of a much different returns than what was projected
- If you can’t manage your money, or can’t be bothered to learn the basics, someone will tell you how to do so, and you may pay a price down the road – the bitterness of ignorance.