A Bangladeshi graduate entering the job market or becoming an entrepreneur to run a business after completion of education never learnt anywhere about the investment mixing for savings. Historically following the precedence approach well known as hereditary, the person goes for small savings or large, and deposits investment money with the banks, buys Govt. Savings Bonds (Sanchaypatra) to get income tax rebate. Even the person invests in real estate individually or jointly for long-term return, buys flat for residential purpose or rental income. Sometimes the person invests in stock market or some unauthorised financial portfolios to get a much higher return in a short duration. Even sometimes the person also invests in insurance coverage not knowing his/her protection need. A small portion of these investors could be successful in gaining higher returns but the majority lost a big portion of money due to lack of trust.
The Portfolio Mix is the breakdown of all of the assets within a portfolio, such as stocks, bonds, deposits, protections, cash, and real estate. Within an asset class, assets can be mixed even further, for example, stocks in a portfolio being either large-cap, mid-cap, or small-cap. A portfolio mix in investment helps investors understand the composition of a portfolio and a diversified asset mix reduces the risk of investing. In Bangladesh, we found the most of investors preferred short-term or long-term deposits in banks, investment in real estates, in stocks or other forms of cash returns, but their choice of investment in protections, primarily in insurance, usually is a push sell by the Financial Associates. Although other portfolio can have higher return and also higher risk of loss, but only the insurance can ensure the protection of the investment without attractive returns. We may see it as a protection with a savings contract but it inflicts no loss. It is very necessary to educate the investors about the necessity of portfolio mix for their protection of life & health through life insurance coverage.
Life insurance, especially in the Commonwealth countries, is a contract between an insurance policy holder and an insurer, where the insurer promises to pay a designated beneficiary a sum of money upon the disability, loss or death of an insured person (often the policyholder) besides the payment of Maturity to the policyholders. Depending on the contract, other events such as accident, illness or critical illness can also trigger payment. The policyholder typically pays a premium, either regularly or as one lump sum for short-term or long-term protection in insurance and get the benefit in line with the policy contract. Modern life insurance also bears some similarity to the asset-management industry and life insurers diversify their product offerings into retirement products such as pensions known as annuities.
Life Insurance contracts tend to fall into two major categories: i) Protection Policies where policies are designed to provide a benefit, typically a lump-sum payment, in the event of a specified occurrence. A common form of a protection-policy design is term insurance and health insurance. ii) Investment Policies - the main objective of these policies is to facilitate the growth of capital by regular or single premiums. Common forms are whole life, endowment life, universal life, and variable life policies. In Bangladesh, the commonly sold policies are Monthly Savings (DPS/MSP), Term Endowments (3/4/5 Stage Payment Plans), Single Premiums, Pensions, Child Education Plans, etc. and some Health Insurance, Disability, Waiver of Premium, etc.
Permanent life insurance is life insurance that covers the remaining lifetime of the insured. A permanent insurance policy accumulates a cash value up to its date of maturity. The owner can access the money in the cash value by withdrawing money, borrowing the cash value, or surrendering the policy and receiving the surrender value. According to Investopedia, the basic types of life insurance plans are explained as follows;
l Endowments Plan: The endowment policy is a life insurance contract designed to pay a lump sum after a specific term (on its 'maturity') or on death. Typical maturities are ten, fifteen, or twenty years up to a certain age limit. Some policies also pay out in the case of critical illness. Policies are typically traditional with-profits or unit-linked (including those with unitized with-profits funds). Endowments can be cashed in early (or surrendered) and the holder then receives the surrender value which is determined by the insurance company depending on how long the policy has been running and how much has been paid into it.
l Universal Life Coverage: Universal life insurance (ULl) is a relatively new insurance product, intended to combine permanent insurance coverage with greater flexibility in premium payments, along with the potential for greater growth of cash values. There are several types of universal life insurance policies, including interest-sensitive (also known as "traditional fixed universal life insurance"), variable universal life (VUL), guaranteed death benefit, and has equity-indexed universal life insurance. Universal life insurance policies have cash values. Paid-in premiums increase their cash values; administrative and other costs reduce their cash values. Universal life insurance addresses the perceived disadvantages of whole life -- such as premiums and death benefits are fixed. With universal life, both the premiums and death benefit are flexible. With the exception of guaranteed-death-benefit universal life policies, universal life policies trade their greater flexibility for fewer guarantees.
l Unit-linked Insurance Plan: Unit-linked insurance plans are unique insurance plans which are similar to mutual funds and term insurance plans combined as one product. The investor does not participate in the profits of the plan per unit but gets returns based on the returns on the chosen funds.
l Term Assurance: It provides life insurance coverage for a specified term. The policy does not accumulate cash value and is significantly less expensive than a permanent policy with an equivalent death benefit but will increase in cost with age. Policyholders can save to provide for increased term premiums or decrease insurance needs.
When purchasing life insurance policies, it's important to consider the amount of coverage you need as well as the cost. Life insurance premiums are based on a number of factors, including your age and overall health. Buying a life insurance policy sooner, rather than later, can work in your favour if you're hoping to secure a policy at the lowest possible cost. Life insurance rates generally increase as people's life expectancy increases or their health deteriorates. And, in some cases, illnesses or health problems may make you ineligible for coverage. The longer you put off the buying decision, the more the insurance will probably cost -- if you can buy it at all. While it is important to buy a policy that's affordably priced, it's important to consider what you're getting in return, in terms of coverage.
Life insurance policies can be a bit complicated, so it's a good idea to learn about their features and benefits. First, evaluate your financial needs and goals, and choose what type of coverage is best for you in order to cover those needs and protections. Make sure you decide on both the right type of coverage (e.g., term vs. permanent) and the correct benefit amount. Then, look for the most affordable coverage from a reputed insurer that can meet your needs. Determine how much coverage you need. There are several rules of thumb for arriving at the right amount of coverage. Before committing to a policy, make sure you do your homework for the portfolio mix, read your insurance contract carefully, and understand all of its provisions. An investor should protect his/her life and health adopting the portfolio mix approach to have a comprehensive protection for his savings, returns, health, child education and retirement plans on a short- or long-term basis.
Email:ceo@charteredlifebd.com