STRIKING A BALANCE BETWEEN INVESTMENTS AND PROTECTION IN UNCERTAIN TIMES

Insurance products have taken on an important role in offering peace of mind and security during these uncertain times.

Investors are starting to realise the importance of striking a balance between seeking opportunities to make money and protecting their wealth.

Insurers have been quick to spot the change in mindset and have launched several single premium insurance plans that address the needs of the market place. For example, Overseas Assurance Corporation (OAC), recently launched EasiCash Saver and the Capital Protected Saver - two capital protected products that also offer annual payouts based on projected returns.

Before the renaissance of single premium insurance, investment-linked insurance (ILPs), were the rage in the market. They gained popularity in the mid 1990s when a slew of such products were launched.

With ILPs, part of the premiums collected are invested in unit trusts run by professional fund managers. So like some unit trusts, they can offer high returns, especially if the premiums are invested in high beta equity funds. But the downside is that stock markets can turn sour and bring losses to investments as we saw in the last three years.

Capital preservation calls for realistic expectations

Most investors are concerned about getting good returns from their investments, but in today's low return climate, it is difficult to achieve high returns without taking high risks. Investors are coming around to this realisation and are now more prepared to set realistic expectations.

It was easier to get attractive returns from equities and properties in the 1980s and 1990s. But the sharp correction in the property and stock markets over the last several years have left many investors poorer and much disillusioned.

Consequently, this has generated a keen interest in a new class of products that offer capital protection and modest returns.

Many single premium endowment products now have built-in capital protection features when the investment is held to maturity. Asia Life's Asia EnRich Plan offers 100% capital guarantee after the first policy year. Products that finatiQ carries, like the Capital Protected Saver, are capital protected at maturity too.

Wealth accumulation and protection can go hand in hand

With low deposit rates, projected yields for single premium insurance products will appeal to investors who are looking for a safe way to grow their money. Moreover, yields earned from insurance products are tax-free.

There are currently a number of single premium plans in the market that offers projected returns that average between 2% to 4%, on top of capital protection.

For example, Asia EnRich Plan has a projected yield of up to 4.66% for a 15-year term, of which the guaranteed portion is 2.15% per annum. Just last year, OAC offered a Guaranteed Return Plan that promised a return of 3.4% per annum over eight years.

The life protection feature, usually at 125% of the investment amount, offers assurance to investors too. In fact, OAC's EasiCash Saver has a 125% life coverage based on the full initial capital even though investors can choose to take back part of their cash over a number of years.

Life coverage is necessary and can be a solace for those who are looking for safety amidst turbulent times. For instance, a young family who decides to stay more liquid but is unwilling to have too much in low-yielding cash, may opt to put part of their funds in a short-term single premium product to take advantage of higher projected returns, as well as the life protection element.

Had the money been invested directly in equities or some other asset, the most common way to raise cash, when required, is to sell the asset at the prevailing market price, which may not always be in the favour of the seller. In times of need, the 125%, or 150% in some cases, life coverage will matter more than one might think.

More innovative products in the pipeline

Singapore's life insurance penetration rate is considered high, around 85%, compared to the rest of our Asian neighbours, excluding Japan.

As our income has progressed over the years, life premiums as a percentage of gross domestic product has also increased to around 5.4% currently, according to statistics from the Monetary Authority of Singapore. Some, however, may argue that compared to living standards, we are still generally under-insured.

This high level of penetration means that innovations and fresh ideas are the next new drivers to promote growth.

While insurance will always be the first thing investors look for when it comes to life protection and financial planning, the dynamics of the market place will ensure that more innovative products will come about.

Besides guaranteed returns or capital protection, maturity terms have already been shortened for some single premium insurance products, in line with shorter investment horizons adopted by investors in view of higher volatility in global markets.