Four ways to make your savings work

Savings and investment plans let you to achieve a better quality of life. Whether that’s to help you build up a nest egg, put money aside for your children’s education or save for a rainy day - careful investment means that you don’t have to worry about the future. Here are four important things you need to do to make your savings and investment plan work for you:

1. Know your needs

Assess your financial needs carefully before you rush into buying a new plan. Firstly, if you already own an insurance policy, ensure you don’t purchase a similar product with overlapping benefits and coverage. To know for sure, it’s best to ask for professional advice. To get an idea of how to achieve your savings goals use the online savings goal calculator. Secondly, if you are planning for your child’s tertiary education, for example, and you don’t want to change the investment aspects too much, then consider an endowment plan. And finally, if you are more concerned about medical coverage, there are insurance plans designed to cover you financially in case of accident, permanent disability, or critical illness.

2. Understand your policy

Insurance companies generally offer two types of wealth accumulation plans - endowment and investment-linked options. Endowment policies offer both insurance protection and cashback return. They are ideal if you want to grow your savings over a fixed policy term, such as a period of 15 or 20 years. Investment-linked policies (ILPs), on the other hand, offer insurance protection and investment components. ILPs are capable of yielding higher returns, depending on the investment risks you are willing to take. A fund manager is usually appointed by the insurer to invest in different assets, such as bonds and equities with the premiums paid by the policy holder. Here too getting professional is best, so you choose the level of risk that is right for you.

3. Track your ILP’s performance

It’s important to keep track of your ILP’s performance, as there are risks involved and returns are not always guaranteed. Investments with potential for higher returns are tempting, but remember that there is also the risk of incurring losses too. Monitor your funds by reviewing their performances published online, and in some cases, on your insurance company’s corporate website. Consult your financial advisor if your circumstances change, or if you’d like to channel your money into different assets via top up or switching. Depending on the type of your investment-linked plan, some even offer free switches.

4. Know the hidden costs

If you have yet to purchase an investment-linked policy, do read the fine print and discuss the details with your financial planner before making your decision. Investment-linked plans can sometimes involve costs. These can include insurance charges, fund management fees, administration fees, and fund switching charges. In most cases, these fees and charges are deducted from the policy holder’s investments.