Savings policy: flexible investing across different tracks
Despite its misleading name, a savings policy is not insurance in the classic sense and provides no compensation for death or disability. It is a liquid investment product managed by insurance companies that lets you invest in the capital market without committing to a fixed period.
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How does it work in practice?
With a savings policy, an insuranceA contract under which an insurance company undertakes to compensate the insured in the event of damage in exchange for a periodic payment. company acts as your "portfolio manager." You deposit money, and the company invests it through the investment track you selected.
- Flexible deposits: Unlike a Kupat Gemel LeHashkaa (קופת גמל להשקעה)A flexible savings vehicle that allows withdrawal at any time, or receipt of a tax-exempt pension after age 60., there is no annual contribution ceiling. You can deposit any amount as a one-time payment, through a standing order or through a combination of the two. This makes the product suitable for large sums, such as an inheritance or the proceeds from selling a property.
- LiquidityThe speed and ease with which money can be withdrawn from an investment and converted into cash in a bank account without significant penalties.: The money is fully liquid. You can withdraw all or part of it at any stage, generally within a few business days and with no exit penalties.
Investment tracks: choosing the level of volatility
You can select from a range of investment tracks according to the risk level that suits you:
- Equity track: High exposure to shares, high volatility and the potential for a higher returnThe profit (or loss) from an investment over a certain period, usually expressed as a percentage of the original amount invested..
- General or balanced track: A combination of shares and bondsA type of "loan" that an investor provides to a government or company in exchange for repayment of the principal plus interest. with a moderate risk level.
- Conservative track: Lower exposure to shares and relatively low volatility.
Taxation: when do you pay?
Like a Kupat Gemel LeHashkaa, a savings policy provides tax deferralThe ability to pay capital gains tax only when money is withdrawn from the plan, rather than when the gain is generated.. As long as the money remains in the policy, no tax is paid on accumulated profits.
- Upon withdrawal: You pay capital-gains tax of 25% only on the real gainThe actual gain remaining from an investment after deducting the rate of inflation.—the profit above the increase in inflationA process of general price increases that reduces the purchasing power of money (the same amount of money buys fewer products)..
- Moving between companies: Moving from one insurance company to another generally requires realizing the policy, paying capital-gains tax and opening a new policy with the other company.
Advantages and disadvantages
| Advantages | Disadvantages |
|---|---|
| Professional management: The money is managed by a large, regulated insurance company. | Management fees: Fees may be relatively high compared with alternatives and affect long-term returns. |
| Full liquidity: The money can be withdrawn at any stage with no exit penalties. | Volatility: The investment's value may rise or fall according to capital-market conditions. |
| Tax deferral: As long as the money is not withdrawn, tax is not paid on profits and the money continues accumulating. | No pension tax benefit: Withdrawal as a pension is not tax-exempt. |
| Simple operation: Opening, depositing and tracking are straightforward and do not require opening a trading account. | Limited control: You do not select the individual securitiesA general term for a tradable financial asset (such as a share, bond, or unit in a fund) that represents a right to an asset or to profits. in the portfolio. |
| Possibility of a loan: In some cases, a loan on relatively favorable terms can be obtained against the accumulated money. | Moving between companies creates a tax eventAn action in an investment portfolio (such as selling at a profit) that triggers an immediate tax payment to the state.: The policy generally cannot be transferred to another company without realizing the investment and paying tax. |
The bottom line
- What is it?
- A managed, simple and highly liquid investment product.
- What is it not?
- A substitute for conservative bank savings or a risk-free investment.
- Who may find it suitable?
- Someone who wants to invest without ongoing involvement, especially a person who wishes to invest more than the annual ceiling of a Kupat Gemel LeHashkaa.
- Main advantage
- A combination of professional management, liquidity and tax deferral.
- Main disadvantage
- Management fees and no special tax benefit when withdrawing the money as a pension.
Frequently asked questions
Can I withdraw the money at any time?
Yes. A savings policy is fully liquid. You can withdraw the money partially or in full at any stage, with no exit penalties or defined exit dates.
Is this an insurance policy?
No. Despite the name, it is an investment product and has no insurance component such as life or disability coverage. The policy is used to manage money in the capital market.
Do I pay tax when moving between tracks?
No. Moving between investment tracks within the same insurance company is not a tax event. You can change the risk level without paying capital-gains tax at the time of the move.
Is there an annual contribution ceiling?
No. Unlike a Kupat Gemel LeHashkaa, a savings policy has no limit on annual deposits and can accept large amounts.
How can I track the money?
Tracking is available through the personal area on the insurance company's website or app, where you can see the current balance, returns and investment tracks.
How do I open a savings policy?
You can open one digitally through an insurance company's website or through an insurance agent or service representative.
Compare and choose carefully
Before choosing a savings policy, examine the available policies, investment tracks, costs and past performance.
Comparing providers
Before choosing a savings policy, compare management fees, investment tracks, joining terms and additional services.
In summary
A savings policy is an investment tool that makes it possible to participate in the capital market in a simple, managed and liquid way.
It is particularly suitable for someone who wants professional management and tax deferral without an annual contribution ceiling.
However, it is important to compare it with alternatives such as a Kupat Gemel LeHashkaa, especially because of the management fees and the lack of a special tax benefit when the money is withdrawn as a pension at retirement.