If you are investing for the long term, you should buy transparent, flexible products.
A flexible product allows you to cancel the product and take out your savings, without any penalty, except for a reasonable transaction cost. Examples are a bank savings account, no-load unit trust or shares bought through the Singapore Exchange.
A transparent product gives you a return that is linked to an external indicator, and is not subject to manipulation by the issuing party. For example, the prices of shares are based to the market price traded on the exchange.
Life insurance products, such as endowment, whole life and investment linked policies, have the following unsatisfactory features:
a) It has high front-end charge (up to two years of premium)
b) It takes more than 10 years for the consumer to earn sufficient gains to recover the front-end charge
c) The bonuses payable on endowment and whole life policies are subject to manipulation by the insurance company
d) The policyholder has to suffer a large loss on cancelling the contract.
Lesson: avoid life insurance policy as a vehicle of savings for the future. Buy a low cost term insurance policy to provide adequate protection for your family.
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