Should I surrender my policy or keep paying $~810/year for endowment plan? - Seedly
 

Investments

Insurance

Asked by Anonymous

Asked on 20 Mar 2019

Should I surrender my policy or keep paying $~810/year for endowment plan?

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 :) !

1

Answers (7)

Sort By

Most Upvote

  • Most Upvote
  • Most Recent

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.

14 comments

6

See all 14 comments

Hariz Arthur Maloy
Hariz Arthur Maloy

26 Mar 2019

Andrew, to OP it is a new investment. At time of consideration he is thinking of letting it go. To continue the policy, that IRR is what he stands to gain. His IRR and his mother's IRR are different.
Andrew Fong
Andrew Fong

01 Apr 2019

That's just sales talk to make the returns seem better than it really is. You have to be objective and look at the projected IRR for the products entire lifespan regardless of who paid what.
Ming Ann
Ming Ann
Level 3. Wonderkid
Updated on 07 Jun 2019

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

1 comment

2
Question Poster

21 Mar 2019

Thanks for answering! Yup, I will try to find out what is the declared bonus yearly, and do a cost-benefits analysis on what to do with the extra money if I surrender it.

Personally, the Sum Assured for any endowment product can be seen as a bonus.

Your consideration should be based on:

  • Is the premium comfortable for you till 2050?
  • Will the payment of this premium affect your purchase of the WL w/ ECI?
  • How old will you be by 2050? Do you foresee yourself still working then?

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.

2 comments

2
Question Poster

21 Mar 2019

Thank you for answering! The premium is comfortable for me. I am just considering if it is worth to continue paying ~$70/mth, or use the money for other higher investment tools. Currently, I am only investing in SSB and STI ETF (via DCA). Thinking of the recent bonds offered by SIA too. To me, the payment of this premium will make me purchase a lower amount for the WL w/ ECI's death and TPD portion. I see myself working at 2050, retiring around 2055 onwards. This seems like a good policy to act as a 'bonus' to my retirement plans.
Lim Wei Siang
Lim Wei Siang

22 Mar 2019

You are welcomed. Higher investment tools comes with their risks as well so that will be another point to consider and of course the time and effort require if you are investing it yourself. Personally, it is quite sad to know that keeping the endowment will cause an impact to the SA you will be getting. I didn’t go through the review with you, so I can’t really comment on the SA amount you should be planning for. Or perhaps go through your cash flow?? Go though your spending & budget to see if it’s comfortable to maintain the endowment and to get the WL with the SA you wanted. =)
Zen Rogue Xuan
Zen Rogue Xuan
Level 5. Genius
Updated on 07 Jun 2019

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!

Regards,

Zen

6 comments

1

See all 6 comments

Zen Rogue Xuan
Zen Rogue Xuan

05 Apr 2019

Value of premium is simply the amount of premiums paid
Hariz Arthur Maloy
Hariz Arthur Maloy

05 Apr 2019

No it's not. Value of premiums paid assumes a 4.75% pure return. Send me your email, I'll show you in an illustration.
Leon Heng
Leon Heng
Level 2. Rookie
Answered on 26 Mar 2019

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.

0 comments

0
Good Samaritan
Good Samaritan
Level 2. Rookie
Answered on 22 Mar 2019

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.

0 comments

0
Loh Tat Tian
Loh Tat Tian
Level 6. Master
Answered on 21 Mar 2019

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.

0 comments

0