HAVING  addressed some of the challenges associated with other forms of savings such as commercial banks, today we will look at the advantages of saving through insurers.
We defined savings as delayed consumption and we drew a lot of lessons from renowned former banke Simataa Simataa.
Instead of depositing money at the bank, saving through insurers entails paying the money to them over a certain period of time.
Insurers have life policies which have a threefold benefit, the life assurance side, the savings and the profit/interest part.
The life component covers the insured or policyholder against death and has some premium called risk premium.
In an event where he passes on during the term of the policy then the beneficiary will be paid the sum assured plus the other two components.
This is a very important aspect of saving through insurers and it removes selfishness in the sense that the one saving does not only think about himself but also about others who might be dependent on his continued existence.
Saving through insurers has a fixed period or term.
During this period the assured agrees to make monthly contributions of a given amount. This amount may be increased over time.
The contributions are deposited in a fund similar to that of a bank account except there are differences we will see below.
From the contributions the insurer liberally invests the money using different investment vehicles for maximum yields.
Some of these vehicles include Treasury Bills, government bonds, lending to other institutions with interest etc. the policyholder doesn’t have to worry about all these technical jargons except the assurance that his money will multiply.
There are two approaches one can explore with these savings. One is where contributions are defined and may fluctuate but the interest is not defined i.e. it will be dependent on the return from the investment vehicle used but should have a minimum return usually above inflation.
This approach has its advantage of potential high return from the
investment which will be passed on to the policyholder. However if there is no return then the policyholder is affected as well.
The second approach is where both the contributions and the final lump sum are defined from inception. In this case the policyholder will be advised how much they will have to contribute if they want a certain amount.
The advantage of this approach is the certainty of the amount you will be paid while the disadvantage is that if the insurer makes more profit it will not be passed on to the policyholder.
The other component is on the method of payments. Unlike a bank account where you deposit cash at will, saving with an insurer requires you to make the deposit on an agreed date.
To ensure consistence the insurer will normally make arrangements to have the instalment deducted via a Direct Debit Account (DDAC), standing order or via payroll.
This reduces the temptation of postponing making that deposit like in the case of the bank account.
My first savings policy was cash based i.e. when I got paid I would then make a cash payment to the insurer.
On a number of occasions I found myself using the money hoping to replace it later. However, that replacement was a huge challenge.
Therefore paying through DDAC or standing order or payroll instils discipline on an individual saving.
The next key component is the ability to withdraw. Unlike a bank account where one can withdraw at will, with an insurer it is not easy.
First of all there is a certain period during which one cannot withdraw without paying penalties. These charges are a deterrent to random withdraws.
This makes sense because these contributions are meant for future usage. Again such measures instills that sense of discipline to the policyholder.
Finally interest rates on such policies are higher than conventional bank accounts. They are normally above inflation rates.
This is due to the fact that insurers will have more time to invest the money than banks. The period of such policies is three, five, ten or more years.
This is considerably a long period during which an insurer can invest and make reasonable returns to pass on to the policy holder. Insurers also have the advantage of large numbers.
With huge sums they have at present to pay in future they can afford to invest such sums in investment vehicles with high interest rate potential.
I hope you have appreciated the advantages of saving through insurers.
It doesn’t matter the amount you start with, Zig Ziglar said “nothing shall ever be attempted if all possible objections must first be
overcome”.Start saving today by contacting any life assurance company.Comments: webster@picz.co.zm or webster_tj@hotmail.com or on face book search for Insurance Talk-Zambia page or call/text 0977 857 055
[The Author is a Chartered Insurer with 12 years industry experience]