Last month, we focused on maximizing our returns
using Flexible investments options using SRS here. Today, we will look into the option of
maximizing your investments through fixed commitments, with protection for Life
and a cheaper rider for critical illnesses as bonus.
I believe that one should always balance the
investments between Fixed and Flexible options. Even for
people with best investment knowledge and availability of time, there is a huge
temptation to exit a flexible plan at every possible downturn. A Fixed option which makes us save every month or year becomes more habitual and enforces financial discipline. It is also less volatile and doesn't require lot of time to manage investments unlike market related instruments.
Think about this - How many people will save $1M dollars with
the same discipline as mortgage commitment?
Why
Endowment Policies are a good investment option?
Theoretically,
it’s possible to get higher returns on equity investments. But, it’s always better
to balance the investments between Fixed and Flexible commitments. You
could commit for an investment that’s easily serviceable with fixed commitments
and the additional you could afford on a flexible basis. The discipline required
for fixed commitments will help us accumulate a far better corpus over time than
the flexible options, even with slightly lower returns.
The endowment policies
in Singapore provide potential returns of approximately 4-5%* which is many
times more than the fixed deposits with banks and also better than the long
term inflation returns. This is in addition to the protection for Life and a cheaper
rider for covering major illnesses during the policy period.
How am I benefitted?
Are you a Singapore tax resident not contributing more than $5000 to CPF yearly? (Most of Employment pass holders,
Self-Employed will be benefitted) If yes, please read the following carefully
and make the most from your investment.
In my 15 years of investment experience, I would say this is the most
compelling benefit to maximize your investment returns.
The investment, standalone, is an extremely attractive option.
The tax relief for insurance makes it a must-have in your portfolio
with potential returns of up to 20%, and more importantly comes with the capital
guarantee at the end of the policy period.
Life Insurance relief (Source : www.iras.gov.sg)
“Maximum of $5,000 capped at the lower of:
- Insurance premiums paid in the preceding year; or
- 7% of capital sum assured on death”
With the highest tax rate of 20%, this potentially
translates to rebates of up to 20% depending on your earnings plus the
potential 4-5%** returns from the endowment fund. The table below explains the
actual benefits for your income range:
*Endowment returns are not guaranteed and calculated at the lower range of 4% for illustration.
** Based on historical returns from Endowment policies.
Salary Range
|
Tax Relief
|
Total Returns
|
$40,000 - $80,000
|
7%
|
11%
|
$80,000 - $120,000
|
11.5%
|
15.%
|
$120,000 - $160,000
|
15%
|
19%
|
$160,000 - $200,000
|
17%
|
21%
|
$200,000 - $320,000
|
18%
|
22%
|
$320,000 and above
|
20%
|
24%
|
Benefits:
- Capital Guarantee at the end of the policy period.
- Discipline of forced savings and tax relief makes it extremely compelling. Even for someone earning $60,000, it provides a return of more than 10% in S$ terms.
- Singapore has been one of the appreciating currencies globally in the last decade. When compared to currencies like Indian Rupee, the Singapore $ has appreciated by more than 50% in just the last 5 years.
- Smoothening of bonuses evens out bad years in the market ensuring a stable return during all years.
- The policy period is an extremely attractive option for children’s education and retirement corpus.
- Protection for Life and optional cheaper rider for major illnesses
Limitations:
- The maximum limit for tax relief is only $5,000.
FAQs/Concerns
Are
these policies covered globally?
Yes, the protection for Life and Major illnesses are covered
globally. In the event of you moving to work in another country, the policy
will still provide you these benefits.
What
will happen to the tax reliefs if am not working in Singapore?
The tax relief is applicable only till the time you have
taxable earnings in Singapore. The policy returns 4% outside of the tax relief
which is closer to the average returns from most Equity funds over the last
decade.
Does
it require fixed commitments of $5,000 and for how long?
Yes – If you would
like to use your tax relief primarily for investment options with Life
insurance as bonus, it would require a fixed commitment for 12 years.
Call @ +65 8113 3272 for a free consultation.
