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?
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