Thursday, June 11, 2015

Endowment Plan

Besides ILP, I also have an Endowment Plan called, Target Saver, issued from HSBC bank.
In my early years, my thought was to have all three “insurance” as early as possible and to fully diversify into ILP, Endowment Plan and also whole life insurance. I cannot imagine at the end of the day, I was actually forking out almost close to 30% of my monthly income into these plans during my early years of employment in Singapore.
So, this endowment plan has a term of 21 years. Interest coupon is 2.5%. I started at age 26 (year 2005, after a year of work in Singapore). Hence, the expiry age will be age 47. By the time, my kid is 15 years old, maybe this can be his university education cost? I used to pay monthly GIRO of S$211.13. But I have since changed the payment mode to annual payment of S$2,483.88. That is an instant saving of S$49.68 per year.

You should do annual payment for such endowment plan or whole life insurance plan as it does not change “anything”. But it is highly NOT recommend doing so for ILP as you want to contribute in monthly basis to get rid of the market volatility. This is crystal clear. So, this Target Saver has only sum assured of S$28,000 and same amount for the Critical Illness. Buying Endowment plan is not so much for the insurance coverage, it is more or less for the pure saving purpose in order to beat the low interest rate in the saving account or fix deposit account. Is this really the case? I hope so.
Endowment plan has GUARANTEED surrender values as well as non-guaranteed surrender value.
To give the true case scenario, I checked my endowment plan value as for today, it is S$23,532.44. Do we beat the projected returns? Based on the table, end of policy year of 10, the total surrender value is projected to be S$25,386. It seems to have a short fall of S$1,853.56.
So, how much return after paying 10 years of endowment plan?
 S$2,483.88 x 10 years = S$24,838.80 (Take note this  is annual payment, if you continue to choose the monthly payment, you actually put even more into the endowment plan).
So, there is still a short fall of S$24,838.80 – S$23,532.44 = S$1,306.36. So, after paying 10 years of Endowment plan, I still loss S$1,306.36?
What is going on here? Again, bulk of the payment goes to their management fees? This is very discouraging.
My ILP paying 11 years is still in loss, not earning a single cent.
Even my Endowment plan paying 10 years is also in loss, not earning a single cent.
Something must be really wrong somewhere. What is the point to have all these policies in the market? I definitely will not need this pathetic insurance coverage of S$28,000 from the endowment plan, unlike ILP has the coverage up to S$100,000, which is a consolidation prize.
What should I do? I will continue to pay and observe the policy value in yearly manner to make sure it is close enough to the projected surrender value. Hopefully, yeah, a big fat hope, that the surrender value will hit the projected surrender value by the age 47. I only can tell you 12 years later from now.
You know what, many people are just like me and you, we constantly receiving annual letter from the insurance agency, happy announcing to you that no matter how volatile is the market, we still keep our promises, giving you the interest coupon as declared, hitting the mark, etc. But again, if you sit down, and crunch in the value that you have put into the insurance policies so far and check the policy surrender value as for today date, then, you will know if all these are true. They might be correct that they fulfil their promises, projected return, but again, there are just way too many other hidden charges behind. 
That is why you now should appreciate why government emphasizes so much on the CPF top up, planning well within the CPF account. If you always think you can beat the CPF interest rate, go ahead and make sure you do your math right. It is not the case all the time. At least my two cases fail badly. Okay, I know it has insurance coverage, but still it is not worth the effort after all. I think I will make a visit with the insurance agent and ask them to explain why. I am keen to know what is their reply.
Now topic shall be Whole Life Insurance. No more surprises, please.

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