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Reader contribution: Two past 25 year insurance savings endowment policy yields more than 3%

Back in April last year, I decide to crowd sourced readers, friends’ matured insurance endowment policies to see how much they are really yielding.

It was a fruitful exercise, with the biggest lesson is that, the average folks probably are not equipped with an internal rate of return calculator or how to go about computing the returns of money going into the policy and money given from the policy.

Due to that, they might see that the return for policies to be lower than what it is really yielding.

This week, I have a reader who has 2 recently matured 25 year endowment plans. Out of all the plans, think I didn’t have 25 year plans.

By right, the longer the duration, the more you should be compensated. And that means the returns should expected to be higher.

Given that in the past the rates of bonds, the major underlying instruments, should have a better yield compared to now, they should be expected to be higher.

The 2 policies details are below:

  • Name: Great Eastern Lion Endowment Plan
  • Start Year: 1990
  • End Year: 2015
  • Duration: 25 Years
  • Premium Paid: $533.70 a year (sum assured $10,000) and $98.60 a year Living Assurance Rider
  • End Value: $14,842 received + $5,000 received at 5th,10th,15th and 20th year
  • The returns you get: 3.84% CAGR
  • Does the plan have any cash back or return: A $1k cash back every 5 years, last year $2k

  • Name: NTUC Special Endowment Plan
  • Start Year: 1987
  • End Year: 2012
  • Duration: 25 Years
  • Premium Paid: $576.00 a year
  • End Value: $22,403 received
  • The returns you get: 3.25% CAGR
  • Does the plan have any cash back or return: NA

I was surprised that the NTUC policy was computed to be less than 4%. NTUC have always illustrated that their yield to be rather high.

For policies of this duration, my thoughts were that they should be yielding 4% at least.

An on-going policy

A friend of mine also pass along his friends’ updates on a 25 year old insurance endowment plan.

It commerce in 2006, and will contribute $1,240 per year with cash back. The benefits illustration lists that the cash back if reinvested will grow at 3% while the returns will depend on the returns of the projected investment returns of 3.75% or 6.75%. Based on the BI, the project return is $44,428.

The person chose not to take any cash back and in a recent update, the projected return at the end of the policy is estimated to be $43,344.

The following is the projected internal rate of return based on this projected end value:

It seems as the years past, the yields of the policies all start tapering down. By the time we buy today, would our insurance endowment compounded yield to be less than 2%?

You can reference the yields of previous policies profiled in this article here.

If you are interested in sharing a matured policy of yourself, friends or family member, do comment below or email me.

Would this be a good 20-25 year wealth building return for yourself and loved ones?

To get started with dividend investing, start by bookmarking my Dividend Stock Tracker which shows the prevailing yields of blue chip dividend stocks, utilities, REITs updated nightly.
Kyith

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Wan

Sunday 9th of December 2018

Hi Kyith. I was wondering if my endowment plan is worth it?

I will be giving $1800 every year for a 25 years plan. I would have to put in $45,000. No cashback and it is a fixed endowment plan.

From the benefit illustration it states : Projected at 3.25% Investment return the guaranteed portion is $41,247 while the non guaranteed is $18,930. Total : $60,177.

Projected at 4.75% Investment return : Non guaranteed is $31,606. Total : $72,853.

Need advise please.

Kyith

Sunday 9th of December 2018

HI Wan, I think the internal rate of return, the measurement of overall returns for many investment assets, for endowment policies like this should be around 2.5% to 3.5%. you have to ask yourself if that is a good enough return, to be locked in for 25 years.

Drew

Sunday 2nd of August 2015

Hi Kyith. I was wondering if my endowment plan is worth it?

I will be giving $311 every month for a 25 years plan.

I'm not a smoker, I'm a very good saver of cash, I am currently working, will be continuing University soon. I have enough money to set aside $311 during these 25 years. And I'm not planning to use my yearly cashback of $2,150

From the benefit illustration it states : Projected at 3.25% Investment return the guaranteed portion is $51,600, while the non guaranteed is 50,244. Total : $101,844

Projected at 4.75% Investment return : Non guaranteed is $70,073. Total : $121,673

Need advise please.

Kyith

Friday 7th of August 2015

Hi Drew,

An endowment plan is as what it is, it is a savings plan that is not meant to be spectacular. My experience tells me the rate of return per year would likely be short of the projection.

From the information furnish by readers and and friends you have a good idea of the range you are expecting. It will also determine by the interest rate going forward.

Lastly, if you have a problem saving, tackle the underlying reason why you cannot save. Those are the bigger problem here not what kind of instrument. A person who have less of that issue and can put away $1000 a month would outperform a person putting in $311 a month just because there are some mental block or some spending issue that he cannot get rid of due to habits.

Best Regards,

Kyith

K Tong

Friday 17th of July 2015

Hi Kyith,

I took this from the GE website. Using their example "Again, you will enjoy 5% discount if you choose to pay for your 5-year premium plan in one lump sum. As such, you will only need to pay S$57,000 instead of a total annual premium of S$60,000 (S$12,000 x 5 years)." Using the IRR formula, I can only get a return of 2.7%, rather than the 3.82% on the chart. Would like to know how they came up with 3.82% returns. Thanks.

Kyith

Friday 17th of July 2015

Hi Tong,

I am not sure which illustrations you are talking about. I think perhaps their returns have some sort of an assumptions. in that perhaps the returns is due to the money all paid upfront versus over 5 years.

J Giam

Friday 10th of July 2015

Hi Kithy

I just started on my investment journey, after I heard you and others speak at the Investment Week organised by SIAS. Thanks for the inspiration!

I was delighted to find your Stock Portfolio Tracker on Investment Moats. But when I tried to open it, an error message "Safari Web Content Quit Unexpectedly" appeared again and again, with the page reloading and reloading. Even after I made a copy with my Google account, the same thing occur.

Any idea how I can overcome this? Much appreciated!

Kyith

Friday 17th of July 2015

Hi I think the spread sheet on mobile is a bit iffy, due to the recent changes by Google Spreadsheet. I can't help much with that, but perhaps you can use it in other mediums.

I don't think I given any talks as well. My command of the language is rather poor haha. You must have mistaken me for some one else.

Best Regards,

Kyith

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