Advice to young people on financial planning

A young man, who just started working, was approached  by a friend who is an insurance agent. The young man already had SAF insurance. The agent told him, "The SAF insurance will expire at age 65. Where can you get life insurance after that? It is better to buy a life insurance policy now to supplement the SAF insurance".

The agent is giving bad advice and is misleading the young man.

Beyond age 65, there is no need for life insurance. The young man would have become an old man with grown up children (who do not depend on him) and would have accumulated sufficient savings to last for a lifetime. There is no need for people to have life insurance when they are old.

If he buys a life insurance policy, the consequences are likely to be:

• The agent would have taken away more than one year of his hard earned savings
• The cash value of the policy at age 65 would be quite low, giving a yield of perhaps 2% per annum
• The policy will continue to be a burden to the policyholder.
• The policy could have taken away more than $100,000 of his savings by age 65 (see "effect of deduction").

My advice to all young people, male and female, is to avoid locking up your future savings in a life insurance policy that gives you a poor return. Here are the ways to avoid this trap:

• Read my book, Practical Guide on Financial Planning, available for $12 here.
• Join FISCA and attend the educational talks
• Read the FAQs in my website. It's FREE.
• Avoid people trying to market life insurance or investment products to you. Here's why.

If you agree with my views, please pass the link to this article to all of your friends, so that they can avoid falling in the same trap. Send e-mail or go through Facebook and other social media.

Tan Kin Lian