Sunday, August 5, 2007

Forced Saving Program

Do you have the financial discipline to save? If you don't and if you always find that money is not enough, you may want to consider taking a forced saving program to ensure that your retirement funds are well provided for in your golden years.

The forced saving program that I would like to introduce here is an insurance product with savings element.

Life insurance, namely, Whole Life and Endowment Insurance are useful savings vehicles. These policies acquire cash value over the years which the policy owner can tap for various purposes such as taking a policy loan or surrendering the bonus to meet some urgent needs. In addition, if it is a participating policy, it pays annual compound bonuses on the policy which are tax free. Such policies enable the policy owner to enjoy capital growth on their investments.

As the name implies, Whole life product is designed for a longer term and perhaps for your entire life. Premium payments purchase protection against the risk of premature death and also allow you to build a cash reserve -- the savings element.

Generally, the face amount of the policy and the annual premium are fixed and the cash value of your policy increases, so the amount of pure risk protection decreases over time. You could look at a whole life policy as a combination of decreasing term life insurance and an increasing savings fund. Part of your premium goes for the death benefit and the rest is like an addition to an investment account.

Also be fully aware that, unlike a savings account, the savings element of a life insurance policy is usually not immediately available to you. You may have to pay surrender charges if you withdraw funds early in the life of the policy. You should carefully consider how much you are paying for the "savings" part of the policy and how soon you might need these funds.

I will elaborate more about the products in the next post.

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