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Monday, 1 September 2008
Why you can’t beat forced savings for long-term gain
Investment-linked insurance policies - which combine life insurance and mutual funds - have become so popular for many insurance companies that they represent almost half of their sales.
Why you can’t beat forced savings for long-term gain
Insurer stays in the black with a conservative approach
Enoch Yiu Aug 31, 2008
Investment-linked insurance policies - which combine life insurance and mutual funds - have become so popular for many insurance companies that they represent almost half of their sales.
But investors often ask: “Why link insurance policies to investments; why not invest in mutual funds directly?”
Cheng Man-kwong, country manager for Hong Kong and Macau at ING Insurance Asia/Pacific, has a simple reply - forced savings.
“Unlike fund products one could sell at any time, investors keep contributing to their investment-linked life-insurance policies for many years to get the protection value of the policies,” he said.
Mr Cheng’s personal investments reflect his confidence in his chosen career. He used his first big paycheque to buy a life-insurance policy, which he later borrowed on for the down payment on his first property.
Mr Cheng started his career with American International Assurance in 1973. Eleven years later, he joined what was then East Asia Aetna as general manager in areas including sales and marketing, individual life and health, and business development.
With the merger of Aetna and ING at the turn of the century, he was appointed country manager.
He has been active in public duties as chairman of the Hong Kong Federation of Insurers and is now deputy chairman of the Life Insurance Council.
When did you buy your first policy? Do you think it was a good investment?
I bought my first life-insurance policy in 1974, just a year after I joined the insurance industry. It was a good investment, because after some years contributing to the policy, I borrowed from the accumulated value of the policy for the initial down payment on my first apartment. That helped me recognise the benefit of an insurance policy: it helped me save money, offered protection, and I could borrow from the policy for other investments.
Do you buy policies with your new companies when you change jobs?
I have only worked for two insurance companies and I have bought policies from both of them. It is not only because I worked in the insurance industry but, like everyone, I really need insurance protection against risks for life, property, medical expenses and others. I have three policies from my previous jobs and one from my current job.
ING is known for its investment-linked products. But why wouldn’t people who want an investment go directly for a mutual fund?
People nowadays like to use insurance policies to fulfil their protection needs as well as their investment needs. If people invest in fund products, they cannot get the life-protection value in the insurance policies.
What is more, it is the forced- saving nature of the investment-linked products that count. If people invest in fund products only, they can sell them any time they want.
If they choose investment-linked policies, people need to continue to contribute to the policies for them to get the protection. They seldom stop paying their [premiums] because they would have to pay the financial penalty for surrendering their policies earlier than the policy’s tenure. Also, before the abolishment of the estate duty in Hong Kong two years ago, investment-linked policies could help families get immediate cash, as life policies were not subject to the estate duty.
Given today’s volatile markets, how do you ask agents to sell investment-linked products? Have you changed your products because of the more cautious climate?
Agents explain to customers that long-term investment has the effect of dollar-cost averaging, in which regular long-term contributions smooth out short-term market volatilities. This minimises risk.
Does being the Hong Kong head of an insurance company affect your investment strategy?
I do not think my job or my position affects my investments, but I do think my age counts. When I was younger, I was a bit more aggressive. As I grow older, I start to shift to a more conservative investment strategy.
Now, at 58, I need to think about my retirement, as I could not afford to lose my pension. As a result, I am very conservative now.
What is your portfolio composed of? Do you invest in stocks, funds or more exotic choices such wine, art or horses?
Besides life-insurance policies, I invest in blue-chip stocks, mutual funds and properties. When I buy a new property and move in, I usually keep the previous one as a long-term investment. I also put my money into long-term bank time deposits. I do not have any exotic investment products as I am a very conservative investor.
What was the best investment decision you ever made?
That was my first life policies that I used to finance my first apartment.
What was the worst investment decision you ever made and how did you get out of it?
Many years ago, I invested in a stock on a tip from my friend. He told me that he had some “inside information” about the stock and the share price would definitely go up due to some corporate actions. So I invested my money in the stock. The stock did not go up but plunged substantially. I lost almost all my investment in the company. I learned a lesson that I should not believe in so-called inside information.
Can you describe your investment style? Are you a saver, spender, speculator or long-term investor?
I am definitely a conservative investor and a long-term saver.
Who gives you investment tips - your agents, bankers, brokers, newspapers or fortune tellers?
I don’t listen to tips nowadays. When I buy stocks, I will read a lot of market information before I invest. I stick to the more conservative blue-chip stocks and the low-risk mutual funds.
Are you happy with your pension plan? Will you buy an annuity product, which will pay you regularly until you die, after your retirement?
So far, I have saved enough for my retirement. I think I am lucky.
Because I have worked in the insurance industry since I was a young man, I started to save in insurance plans, which form part of my retirement benefits.
This led me to prepare my retirement maybe earlier than the average person in Hong Kong. When I get my pension, I will properly take a lump sum and then put part of it towards an annuity policy.
Do you have any particular charities you like to take part in?
I have donated to the victims of the Sichuan earthquake and have been active in the Rotary Club. I believe in contributing to the community.
1 comment:
Why you can’t beat forced savings for long-term gain
Insurer stays in the black with a conservative approach
Enoch Yiu
Aug 31, 2008
Investment-linked insurance policies - which combine life insurance and mutual funds - have become so popular for many insurance companies that they represent almost half of their sales.
But investors often ask: “Why link insurance policies to investments; why not invest in mutual funds directly?”
Cheng Man-kwong, country manager for Hong Kong and Macau at ING Insurance Asia/Pacific, has a simple reply - forced savings.
“Unlike fund products one could sell at any time, investors keep contributing to their investment-linked life-insurance policies for many years to get the protection value of the policies,” he said.
Mr Cheng’s personal investments reflect his confidence in his chosen career. He used his first big paycheque to buy a life-insurance policy, which he later borrowed on for the down payment on his first property.
Mr Cheng started his career with American International Assurance in 1973. Eleven years later, he joined what was then East Asia Aetna as general manager in areas including sales and marketing, individual life and health, and business development.
With the merger of Aetna and ING at the turn of the century, he was appointed country manager.
He has been active in public duties as chairman of the Hong Kong Federation of Insurers and is now deputy chairman of the Life Insurance Council.
When did you buy your first policy? Do you think it was a good investment?
I bought my first life-insurance policy in 1974, just a year after I joined the insurance industry. It was a good investment, because after some years contributing to the policy, I borrowed from the accumulated value of the policy for the initial down payment on my first apartment. That helped me recognise the benefit of an insurance policy: it helped me save money, offered protection, and I could borrow from the policy for other investments.
Do you buy policies with your new companies when you change jobs?
I have only worked for two insurance companies and I have bought policies from both of them. It is not only because I worked in the insurance industry but, like everyone, I really need insurance protection against risks for life, property, medical expenses and others. I have three policies from my previous jobs and one from my current job.
ING is known for its investment-linked products. But why wouldn’t people who want an investment go directly for a mutual fund?
People nowadays like to use insurance policies to fulfil their protection needs as well as their investment needs. If people invest in fund products, they cannot get the life-protection value in the insurance policies.
What is more, it is the forced- saving nature of the investment-linked products that count. If people invest in fund products only, they can sell them any time they want.
If they choose investment-linked policies, people need to continue to contribute to the policies for them to get the protection. They seldom stop paying their [premiums] because they would have to pay the financial penalty for surrendering their policies earlier than the policy’s tenure. Also, before the abolishment of the estate duty in Hong Kong two years ago, investment-linked policies could help families get immediate cash, as life policies were not subject to the estate duty.
Given today’s volatile markets, how do you ask agents to sell investment-linked products? Have you changed your products because of the more cautious climate?
Agents explain to customers that long-term investment has the effect of dollar-cost averaging, in which regular long-term contributions smooth out short-term market volatilities. This minimises risk.
Does being the Hong Kong head of an insurance company affect your investment strategy?
I do not think my job or my position affects my investments, but I do think my age counts. When I was younger, I was a bit more aggressive. As I grow older, I start to shift to a more conservative investment strategy.
Now, at 58, I need to think about my retirement, as I could not afford to lose my pension. As a result, I am very conservative now.
What is your portfolio composed of? Do you invest in stocks, funds or more exotic choices such wine, art or horses?
Besides life-insurance policies, I invest in blue-chip stocks, mutual funds and properties. When I buy a new property and move in, I usually keep the previous one as a long-term investment. I also put my money into long-term bank time deposits. I do not have any exotic investment products as I am a very conservative investor.
What was the best investment decision you ever made?
That was my first life policies that I used to finance my first apartment.
What was the worst investment decision you ever made and how did you get out of it?
Many years ago, I invested in a stock on a tip from my friend. He told me that he had some “inside information” about the stock and the share price would definitely go up due to some corporate actions. So I invested my money in the stock. The stock did not go up but plunged substantially. I lost almost all my investment in the company. I learned a lesson that I should not believe in so-called inside information.
Can you describe your investment style? Are you a saver, spender, speculator or long-term investor?
I am definitely a conservative investor and a long-term saver.
Who gives you investment tips - your agents, bankers, brokers, newspapers or fortune tellers?
I don’t listen to tips nowadays. When I buy stocks, I will read a lot of market information before I invest. I stick to the more conservative blue-chip stocks and the low-risk mutual funds.
Are you happy with your pension plan? Will you buy an annuity product, which will pay you regularly until you die, after your retirement?
So far, I have saved enough for my retirement. I think I am lucky.
Because I have worked in the insurance industry since I was a young man, I started to save in insurance plans, which form part of my retirement benefits.
This led me to prepare my retirement maybe earlier than the average person in Hong Kong. When I get my pension, I will properly take a lump sum and then put part of it towards an annuity policy.
Do you have any particular charities you like to take part in?
I have donated to the victims of the Sichuan earthquake and have been active in the Rotary Club. I believe in contributing to the community.
Do you think you are rich or poor?
I am financially comfortable.
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