Good investment planning can turn our goals from dreams into realities. This planning involves more than trying to pick the “right” investments. How we allocate our money among different types of investments can have a greater effect on investment success than the individual investments we choose. So, our first step in investing toward our goals is to work out an asset allocation for our investment.
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What Is an Investment Policy?
With life insurance, we basically have two options from which to choose: term life, also known as pure insurance coverage, and whole life, which combines an investment vehicle with elements of term life insurance. The main difference between the two is that whole life policies build cash value. Also known as permanent life insurance coverage, whole life insurance allows policyholders to enjoy tax-deferred investment growth. In this way, whole life is considered an investment policy, or a policy that accumulates value in excess of the face-value death benefit over time.
Types of Investment Policies
Investment policies come in three forms: whole life, universal life, and variable life policies. Each of these policies is explained below.
Whole life. Premiums remain constant over the life of the policy, and cash value accumulates on a tax-deferred basis. Whole life policies also sometimes provide dividends, but they are not guaranteed. This type of policy can be used to supplement retirement income.
Universal life. Premium payments are applied toward the accumulation fund that earns interest. We can then borrow against or withdraw from the cash value or use it to pay us premiums.
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Variable life. Variable life is the most aggressive investment policy. This type of coverage allows us to invest the cash value of the policy in different funding options that then invest the money in things like stocks and bonds. In this scenario, we can decide how our money is invested, but you also bear the investment risk.
The main appeal of a life insurance investment policy, especially as a retirement-planning tool, is its ability to offer tax-deferred growth. Tax-deferred growth means that income tax and capital gains tax are delayed on the accumulation account. Whether a life insurance investment policy is right for us primarily depends on if we would be better off purchasing a cheaper term policy and investing the difference on our own. Whole life policies typically come with high commissions and fees, which makes them many times more expensive than pure term life insurance.
What is a beneficiary? We can designate what portion of our policy goes to each beneficiary in order to suit the individual family needs. Every life insurance policy, whether it is term, whole life, universal.
Every life insurance policy, whether it is term, whole life, universal life, or some other type of life insurance, has a beneficiary. Joe Sostarich, a 26-year veteran of life insurance sales tells us, “The beneficiary is the person or persons who receive the proceeds of a life insurance policy after the insured dies.” We might think that it would be simple to choose a beneficiary and it might very well be, but there are many scenarios to consider. A beneficiary could be one person or many people who will split the proceeds.
When we word our insurance policy, it is very important to be as specific as possible when designating a beneficiary. The whole name of the person should always be included as well as their social security number to make locating the person easier for attorneys after our death. Many people choose their spouse to be the beneficiary of their insurance policy. People want to make sure that their spouse is taken care of in the event of their death and loss of their income.
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If we decide to make our spouse a beneficiary to our policy we need to specifically include our spouse’s full name in the policy. Simply saying that we want our wife to be the beneficiary could cause problems down the road if we should happen to remarry or if this is our second marriage. An ex-wife could try to claim the proceeds of the policy and may have the legal right to do so.
Many people decide to leave their policy to their children. Life insurance policies can make it possible for children to go to college and be taken care of if one of their parents dies. We can designate what portion of our policy goes to each beneficiary in order to suit the individual family needs. If an insured were to die before his children were old enough to receive the proceeds the money would be put into a trust fund until they were of age. An insured might choose to have an adult who will be caring for his children to be the beneficiary so that they can use the money immediately to take care of the children.
A beneficiary does not have to be a family member. Joe says, “A beneficiary of a life insurance policy could be a charity or organization that the insured wants to support.” Some people who do not have family members that they want to take care of may decide to leave all of the proceeds to their church or a favorite cause.
A beneficiary could also be a trustee if we have a life insurance trust policy. A trustee is usually a bank or a professional trust association that administers our trust. The reason that we might leave our policy to a trustee is that the money can then be distributed to our family without them having to pay an estate tax on the money. There are no estate taxes on the money because it is never officially owned by the insured.
Whomever we choose as the beneficiary of our life insurance policy, it is a good idea to include a backup beneficiary in case of the death of a beneficiary or the disbandment of an organization we have designated as a beneficiary.
How can a whole life insurance policy be used as an investment? Some life insurance policies pay a set amount of money to our beneficiaries if we die one time within the duration of our policy. Other life insurance policies, such as whole life insurance, allow us to use the policy as a financial tool as well.
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Some life insurance policies pay a set amount of money to our beneficiaries if we die one time within the duration of our policy. Other life insurance policies, such as whole life insurance, allow us to use the policy as a financial tool as well. Whole life insurance can provide us with coverage for our loved ones while it simultaneously builds savings that we can use in many ways.
One of the ways that a whole life insurance policy can be used as an investment is simply by its virtue of building cash value that earns interest. Joe Sostarich, a 26-year veteran of life insurance sales and management tells us, “Whole life insurance policies accrue a cash value over time, unlike term life insurance. Term life insurance does not have any value other than the face value that it will pay to our beneficiary upon your death.” The cash value that a whole life insurance policy builds over time can be used by the insured while he is still alive, whereas the only person to ever benefit from term insurance is the beneficiary. The cash value that a whole life policy accrues can either be accessed by surrendering the policy and cashing out, or by taking a loan against the cash value. Some people may choose to cash their policy out when they retire in order to supplement their retirement income. If the policy is cashed out, there may be a surrender fee. In addition, the cash value that we accrue on a whole life policy is tax deferred which makes it a good option for saving our money.
Another way that a whole life insurance policy can be used as an investment is through the use of a whole life annuity. If our whole life policy is set up with an annuity, we will receive payments after a set number of years that will come at regular intervals for the rest of your life. For example, if our annuity is set up to begin when we are 65, we can receive a regularly monthly payment that is drawn from us built up cash value for as long as the value lasts. This is an excellent way to insure a steady income during your retirement years. In this way, your life insurance policy can also double as a retirement plan.
People with great wealth often will use whole life insurance policies as a way to pay off estate taxes when they die. In this way, an insured’s heirs will not have to go through hardship in order to claim their inheritance. Because of the tax-deferred status of the policy, the whole life policy can be a good tool for protecting other investments against high estate taxes.
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Whole life insurance policies guarantee a certain rate of interest on their accrued cash value much like a savings account. While a guaranteed rate may seem attractive, it may be possible to get a higher return with other investment tools such as IRA’s or mutual funds. A whole life insurance policy should not be used for investment purposes alone; however, if we need life insurance it can be an additional amount of protection for our future.
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REAL ISSUES
An investment-linked insurance plan is a combination of investment and protection. The premiums provide not only a life insurance cover, but part of the premiums will also be invested in specific investment funds of your choice. The investors will get to choose how to allocate their insurance premiums towards protection and investment.
Recently, there are many types of investment provided in Malaysia. Therefore, people are making their choices freely for their own goodness. The investment in insurance has been recognized and established in Malaysia which is currently give big impact towards the economic in Malaysia. However, the scenario of investment in insurance is still seems like vague to certain people in Malaysia. They still do not know what investment in insurance is about due to no emphasis and exposure from the related sides.
Therefore, there is the existence of insurance company which is adapting the Takaful product that providing the investment-linked insurance with the application of Islamic principle that widely available for all non-Muslim and Muslim people. These are really competitive in a market and Dirrheimer said that Takaful has the strong structure and profitable to be penetrated in the foreign market.
Based on the current issues related, there is the incremental in the proportion of investors in Malaysian and foreign countries’ investors. These are all about the investors are attracted to the good flow of our money because Malaysia implement the collaboration with the other countries and exist the networking in terms of investment in insurance by providing and offer the units of funds to be invested with effective interest rate.
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From many cases has been happened nowadays in Malaysia, the citizens in Malaysia shows that they achieve the incremental of ‘standard of living’ due to has early preparation on facing the future life or problems. The investment in insurance is not just making an investment solely and get the benefits on maturity, but this kind of investment involve the capital and investors’ protection. This investment also act as the guarantor if any cases will happen in future such as on retirement age, for children education plan and also extra cash value on hand that will earned by the investors. Indirectly, it will affect the economic stability in Malaysia.
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Involvement in investment includes the risk that cannot be predicted. One of insurance company in Malaysia has quoted ” Bear in mind that when you are exposed to financial markets, the value of your investments could go up, it could also go down”. So, the return and risk could not be anticipated. the existence of investment plus insurance that can give an indemnity of any undesirable cases happen and adding with dividend of investment plus more on principal has been invested.
In addition, with the close relationship between the insurance companies with the central bank, Bank Negara Malaysia, these both side is complementary each other and can boost up the profit margin in our economy and with the BNM’S guideline will lead to the easy access of all networking either in terms of individual, political, social and economic.
To be summarized, investment in insurance is really tough to hold and the best way to be taken and involved by the investors for those who want to generate profit and plus with the better future plan.
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IMPLICATIONS
ECONOMIC SECTOR
Implications in economic sector states that when investor or groups have higher participation on investment in insurance may cause less or reduce on inflations consequences on that country. It also can build or improve economic strength that as some protection or preparations when having inflation in the future. The investment in insurance is not only favorable to lower income groups but also for all ages. It shows a serious concern given the difficulties of the people, especially for low-income earners. But if we look carefully, it will not only cover but also the entire class of low-and moderate-income, working class, the disabled person, pensioners and the Orang Asli. It is not only the most comprehensive but also focus on reducing inflation and strengthening the resilience of countries to deal with global economic uncertainty.
The threat from the effects of inflation is very large. It is likely to continue in a fairly reasonable period. For example higher global oil prices. We must also accept that global oil prices will continue rising trend. This means that the individual action to take investment especially in insurance policies to address the impact of increasing the material initially can be seen is in some preparations that is an important step and must be expedited. It is such guarantee in the future for the investor. The threat of rising inflation and the global economic uncertainty is real and should not be taken lightly.
Government is continuing its efforts to attract foreign investors as providing a conducive environment for private investment with incentives for the ICT and the development of growth corridors. Company of insurance takes places on attract foreign investor in their investment sector. When country having a low inflation, we can attract foreign investor to invest in insurance policies. When have low inflation it can cause higher interest rate investor will get higher return on their dividends payment.
Another implication is on tax imposed by insurance company which is its related with government. It means that a company that wants insurance should be taken through the tax from their government. Insurance companies are boundaries with a Bank Negara Malaysia (BNM). Indirectly, it can boost the economic growth of the government. For simple example is,5% tax in charge on fast food like at Mc Donald’s or Kentucky Fried Chicken(KFC). The consumer must pay include the tax on government for their services. Its same goes with taking insurance by ones company.
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The tax that imposed by government will be used on preparation or planning in economic sector for the future such as in annual BAJET. The government should have a strategy for economic growth to survive despite the possibility of global recession
SOCIAL (INDIVIDUAL)
Once someone decide to invest his money to buy insurance for his beneficiary or for his own, it showed that he concern about his beneficiary or his especially for future life. We are already knows that life are risk. We are always exposing by risk. Use your money for buying insurance is a good investment for your future life. Through insurance, it will back up you at the end when you face problems. Through invest your money by buying insurance will support you and your family from unexpected situations likes accidents, death or your children education. Once you have insurance means you have future life planning.
To protect the lifestyle we currently enjoy, so we need to plan ahead. One of part a positive implication when invest in insurance are better life for children. Long term assurances for your child’s future as it ensure his future education needs are realized. Having good education is the chance to a good life. That’s why most parents today concern to give the best education for their children. Most parents try to give a better education to their child start from primary schools until their children study at university. Moreover, as we know, cost of good education in our country increasing every year. Therefore, most parents start planning from now. So, no issues at the end day about not have enough money to pay the educations fees and the end children quit from study. Having insurance of education able to student to not too depends on loan education or scholarship from government.
Some of people decide to retire earlier. They belief that their saving and EPF is enough to support their current living style after retire. Based on statistics, majority of EPF contributor will run out of money after their 58 years old. So most of them take initiative by invest their money to buy insurance, annuities, private pensions. For example Employees Provident Fund (EPF) provide EPF Annuity Scheme to contributor. This scheme provided lifetime income after retirement. Another scheme likes Takaful Annuity Scheme. This scheme provides income after retirement for policyholder until they are 100 years old.
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