Asked by Anonymous
Mum bought an endowment for me, nt sure if I shld surrender when I take over in 1yr Rough info: // Maturity (year) : 2050 // AnnualPremium: $810 // Premium Paid to date: $15.1k / Payout upon maturity: $190k (140k is non-guaranteed, 50k is guaranteed) /Current Cash value: $~13k Sum Assured: $50k (Death & TPD) Others: I currently am covered with H&S (100% w/ rider), intend to get WL w/ ECI, limited 25y. I only know of SSB/STI ETF in terms of investment. Any advice is greatly appreciated :) !
Currently keeping that endowment plan will give you a 7% per annum compounded return if you get 190k in 31 years.
That's one hell of deal.
Personally, the Sum Assured for any endowment product can be seen as a bonus.
Your consideration should be based on:
Endownment is a product that allows you to accumulate your wealth faster than any normal bank accounts. I would also put it across as a product that will compliment your future plans/lifestly when it matures.
Therefore, you should really look into your whole portfolio first to determine how well prepared you are in other aspects and concerns.
As your endowment has a longer tenure, the product’s ability to accumulate wealth through compounded interest is high and you will be able to benefit from that. But DO still go through your overall portfolio to determine your next course of action.
An annual premium of $810 works out to about $67.50 a month, which is pretty affordable. Assuming you are a poly diploma holder that earns about 2.8k, that works to about 2% of your pay!
As you have mentioned, the guaranteed amount(50k) is much lesser than that of the bonus amount(140k). While social media is rife of horror stories about non-guaranteed amount, what you can do is to better understand your policy.
The Good: the Terminal Bonus(TB) and Revisionary Bonus(RB) components. Many are unaware of the calculation of the Revisionary Bonuses ("bonus" annual bonuses added to your policy) and the Terminal Bonus ("final" last bonus received when you surrender, claim upon or matured, usually as a percentage of the final sum).
This will affect the calculation of the returns if you are just using surrender value to estimate your maturing value as TB is a percentage of your accumulated and compounded RB(Estimated 50%-400% of compounded RB depending on surrender type and date) which can make up a big sum, especially over a long time period of 50 years!
The Bad: "Effect of Deduction" (EOD) - think of it as a fee for protection and maintaince includes the cost of insurance, distribution cost, expenses and surrender charge. The EOD can eat away at your gains, particularly management fees. Policyholders' net return is usually (substantially) lower after taking into account management expenses, distribution and other costs such as mortality.
What I would do is to call up the company and ask about EOD and past history of TB & RB. If the TB and RB are pretty decent, you can then take steps to reduce to EOD such as switching to a fund that charges a lower management fee. Since your mum have paid faithfully for you for close to two decade, it would be a shame for you to give it up!
Working backwards based on the post, your mum already have paid the policy for 19 years and you have to continue for the next 31 years, probably a 50 years endowment plan. If you wish to surrender the plan, do take a look at the contract if there is any early surrender charge.
Also, assuming the scenario that you do terminate the plan and get back a portion of your premium + $810, what would you do with the extra money ? Apart from investing into SSB/STI ETF.
Probably you should take a look at the declared bonus yearly (if applicable) and see if this endowment plan are able to give the projected return.
If the returns are decent and are higher than SSB, continuing this plan is a good move actually
Looks like a 50 year policy? What year do you have to pay until?
Looking at it you are simply making over 4 times the total premium amount over the entire period it is too good to let go.
Keep the endowment plan. If you want to get whole life plan, you can opt to get WL plan offers dividends payment with Rider ECI attached. Dividends are good to have as you can use the money to pay for the policy itself, at the same time enjoying the coverage.
My view is never to surrender unless you are able to generate 8% - 10% returns.
However, if you really wish to surrender, please look for me. I will be able to list your policy on Policy Xchange for market makers to give you a quote.
If you wish to know how well the policy can perform, I can do a report on it. or you may purchase the report through here. https://www.qoo10.sg/item/CHEAPEST-PROFESSIONAL-CONSULTANCY-SERVICES-FOR-INSURANCE-POLICY/646088766?banner_no=1305330
I provide report services on Life plans and Endowments.