For insurance, there are often few columns with guaranteed and non guaranteed amount (3%, 5% etc). Which column should we look at or more often used?

Hi anon,

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For most endowment or life plans, the current figures used are 3% and 4.25%. projection, followed by two columns of numbers below. Let's use 4.25% for my answer.

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We need to understand that this is just a projection, these represents a hypothetical investment return of the insurer and the column of numbers show the amount that will be added to your policy if the insurer attains the returns and credits it. The actual number, if you use it to calculate, will be lesser than 4.25%, because the insurer has to account for costs.

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So the real number you want to look at is the interal rate of return, or more simply, the yield. You can calculate the yield by know the yearly cash flows, money coming in now is worth more than money coming in later because it will have more time to grow. A cash flow calculator can help you to get the actual yield of the policy based on the cash flows you input.

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Take note that when a figure is under the guaranteed column, this figure is a contractual obligation and must be paid out, any figure in the non guaranteed 4.25% column may not be paid out, but having said that, when the insurer declares and credits it to your policy, it becomes guaranteed.

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Thus, the guaranteed value of a policy can only go up, and cannot come down. This is something that I find is not well understood by a lot of people. If I buy an endowment policy and the guaranteed yield is, say 1% after 20 years, that's the minimum I will get and it can only go up from there. By the time it matures in 20 years, my true yield will likely be 3+%.

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More often used in discussions is the column with the higher projection, the figures used to be higher (4.75%) but have been revised downwards to reflect real world scenarios. If you really want to be cautious, take the average of the 3% and 4.25% columns.

There are 2 values the insurannce policy provides:

1. Cash Value or Surrender Value: this will be the dollar value you will receive when you surrender the policy.
2. Death/TPD Benefit: this will be the dollar value when you pass on or permanently disabled.

The guaranteed amount would be what you can count on. Non-guaranteed amount would be what you hope for.