Maintain flexibility in a financial contract

When you invest in a financial contract, make sure that you have the flexibility to terminate the contract, without penalty.

Do not be locked into a long term contract that imposes a heavy penalty. Examples of contracts to avoid are:

* traditional life insurance, eg whole life or endowment policy
* structured products

These contracts incur a high, upfront cost. If you terminate the contract, you will suffer a penalty.

If you wish to buy a traditional life insurance policy, you should a cooperative (such as NTUC Income) as most of the future profits are returned to the policyholders.

In a commercial insurance company, the profit are given to shareholders. If you are locked into a long term contract, you may get a poor deal.

The flexible savings products are:

* unit trust or mutual funds with a low upfront charge, and no penalty

If you do not like the performance of the fund or the charges, you can withdraw your investments and put the money into another fund. This flexibility ensures that you will get a good deal all the time.

If you need life insurance protection, choose a term insurance plan (where the premium is very low). You can reduce the premium further, if you choose a decreasing term insurance plan.