Do you think investment plans from insurers are better than investing directly in the market? - Seedly
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Anonymous

Asked on 13 Aug 2018

Do you think investment plans from insurers are better than investing directly in the market?

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Paridhi Jhunjhunwala
Paridhi Jhunjhunwala, Associate at Kristal.AI
Level 7. Grand Master
Answered on 29 Nov 2019

Hi!

Investments made by insurers are not meant to provide a high return. They are in turn intended to provide safety and so the return may not be very high. If your objective is to earn a higher return, you should consider investing on your own. The returns here will be dependent upon various factors like investment timing, stock selection etc.

In case you want some guidance while investing, so that you do not have to put too much time in it, you can try a robo-advisor. A robo-advisor will create an optimal portfolio for you based on your financial goals and risk appetite without a very high fee linked with it.

I work at Kristal.AI, and it's my passion to evaluate various upcoming investment opportunities.

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Assuming you are investment with the purpose of making money - then no; insurers aren't going to be better. There is just too many hand in the pie taking fees that weaken the returns.

For other considerations (advice, possibly, from an agent, easier dispensation of proceeds on death due to beneficiary mechanism) then investments through insurance company may have some value.

If you do choose investment through insurance products, best you try to identify why you are doing so.

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Luke Ho
Luke Ho, Money Maverick at Money Maverick
Level 7. Grand Master
Answered on 10 Nov 2018

Better is pretty subjective, unfortunately.

If you're of the perception that lower fees is always better, than the answer would be no.

If you want a wider range of benefits - such as convenience, free switching, monitoring, regular updates, a guaranteed capital plus more upon your untimely death and the smooth transfer of those assets upon said death - and many more, than an investment plan from an insurer may be right for you.

Keep in mind there are many types of investments from an insurance company and you don't want to invest in a time bomb (https://www.moneymaverickofficial.com/posts/ugly-ilp-time-bomb, https://www.ifa.sg/ilp-considered-inferior-time-bomb/), do an investment with a higher focus on returns.

You can always nudge me if you're unsure.

https://www.facebook.com/luke.ho.54

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Tan Siak Lim
Tan Siak Lim
Level 4. Prodigy
Answered on 14 Aug 2018

Investing directly in the market will always give you potentially higher return.

Please note that insurance is primary for protection, not return. Term policy has not cash value.

If you buy a whole life policy, the cash values will accumulate to a point where the policy is self funding. The underlying asset allocation is about 65% bond, 35% equity, this is regulated, so it will not perform like a pure equity portoflio.

If you buy an endowment policy, it is a saving plan, not insurance as there is no protection. Again, the underlying allocation is only about 35% equity, so the expected long term rate of return is about 4.5%, due to this controlled asset allocation. The benefit is the insurer gives some guarantee so that you will not lose money, unlike direct investment where there is no guaranteed.

If you are talking about ILP, then there are many layers of fee:

  • fund management fee of the underlying funds

  • product wrapper fee

  • advisory fee

These fee is justifiable if you can achieve a favourable return, and if you don't know how to do it yourself.

Surgeons and lawyers also charge a high fee, but if you need it, you need it. If you think you can do it yourself, do it yourself.

Ultimately, it depends on your risk appetite, your investment skils, available time and most importantly, temperament. ​​​

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