I have a 20 year endowment that my parents bought for me since I was young. Should I continue on holding to it if I want to invest instead? - Seedly
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Endowment Policies

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Anonymous

Asked on 27 May 2020

I have a 20 year endowment that my parents bought for me since I was young. Should I continue on holding to it if I want to invest instead?

Every year I pay $2,000 for this Endowment policy. Wondering what should I do with it and how do I know whether I should cut loss? As I am keen to invest in global equities

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Hi anon,

If your parents bought it for you when you were young, there's proabably not that many years of payment left. I'm guessing maybe 5 more years at most to pay. Then you can just let it roll and not bother about it, till it matures. It will act like a fixed income portion of your portfolio.

Please don't surrender the policy unless you have no other option. The compounding effects are tremendous, and you should get a pretty decent payout when it matures. You can check your policy value by logging in to the insurer's portal (might be under your parent's name however, you have to check). Older policies from the early 2000s have pretty decent rates.

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Hey there!

In general, $2000 a year will equate to proxy $180 a month. If you are earning proxy salary range of $2,000-$3000 a month, that will be less than 10% of your salary. For a guaranteed payout with interest + potential bonuses, you prolly should hold onto it if its ending soon.

Your investment doesnt have to be separate from your endowment too; its good to have a guaranteed and variable stream of income.

Financial planning is an integral part of life. You can reach me here to find out more.

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If you are unable to fund it, the policy should have sufficient premiums to "pay itself" through an automatic premium loan feature. Through this, given the few years left, the return will still be better than an outright surrender.

Request for a revised policy benefit illustration, one with full payment and one with APL. Compare both and assess your options.

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Damn son, a 20 year endowment policy is probably giving you 5-6% compounded for every premium payment right now.

I suggest you hold on to it as a means of diversification. If there's a maturity, just hold it till then, if it's whole life, re assess every year. Sit down with an advisor to understand your plan better.

If you really end up wanting to let it go, consider selling it instead of surrendering it.

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1 more comments

John Ong Zhenxi
John Ong Zhenxi

02 Jun 2020

Hi Hariz, would there be any chance that the returns are cut from previous years? Or is it the case that whatever has been guaranteed by the insurance company every year is already guaranteed hence untouchable?
Hariz Arthur Maloy
Hariz Arthur Maloy

02 Jun 2020

Hi John, if there was a cut, it would have been highlighted to policy owners and a new updated illustration showing revised projections should've been provided. But you're correct that declared bonuses are already guaranteed and cannot be taken back. What any policy holders will be concerned of would be reduced Terminal Bonus % range and reduced RB rate moving forward.

You should definitely hold it!

most endowment policies breakeven only near the end of the policy term. If you parents had been paying it for you; it means your ROI is much higher than you would've already done it yourself.

that's even better returns than jumping into the market if you have no knowledge an experience as yet since its more or less guaranteed.​​​

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Kelvin Tan
Kelvin Tan
Level 3. Wonderkid
Answered on 01 Jun 2020

Better not surrender when it has been in force. Discuss with your agent or speak to the company what can be done to help you with this period.

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As long as you are able to continue paying premium for the policy till maturity, there is no reason for you to give up on it, as it has likely accumulated an internal rate of return of around 5%-6% per annum as Hariz mentioned here.

Disclaimer: I co-founded a business trading insurance policies.​​​

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Question Poster

27 May 2020

Ok got it thank you!

Learning to invest is not mutually exclusive to holding an endowment policy. In fact, it may help you to build your overall financial portfolio. In detail, we can perform in-depth calculation to find out the amount of risk that we need to undertake for your investment.

To do this, I will suggest for you to get a revised policy illustration. This is to find out the yield that you will be getting for your policy.

Meanwhile, it will be good to understand how the participating component works in an endowment policy.

More Details:

What is a Participating Fund

Generally, with limited downside for investment risk, an endowment policy will acts as an anchor in your overall portfolio.

I share quality content on estate planning and financial planning here.

2 comments

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Question Poster

27 May 2020

Sure thank you
Pang Zhe Liang
Pang Zhe Liang

27 May 2020

All the best!