I met a client to make medical claim for him 3 weeks ago. In a hurry after passing me the medical receipts, he asked me to check on the Hong Leong Bank Endowment Saving Plan which his friend said giving 15% return annually!
What went straight to my mind was how a bank can make 15% return for endowment plan? A bank is a financial institution. The bank must abide by law of how they do investment. For non-linked policies, investment are focus on bonds and securities. The return is almost always around 2.5% to below 4% compounded. Simply, the return for non-linked policies will no more than what the unit trust bonds are giving!
Insurance companies and banks are very clever at marketing tactics. For those who are lazy to do maths calculation are the main customers of these plans. In fact, many insurance agents and bank staff are also quite ignorant about the returns of the endowment plan. These are the front-end sales force that push the products to reach their sales target!
Endowment plans are packaged in many different ways. Policy term can be 20years to whole life. Premium term can be as short as 5 years or a lump sum at beginning of the policy term. Then it can gives guaranteed annual or alternate year survival benefits, not guaranteed cash dividends, terminal dividend, reversionary bonus etc. No matter how they package the products, the return is always more or less the same across the board.
Buying Endowment for return is the last thing I would do. The sum assured is low but the premium is high. In today's market, there are so many varieties of investment tools. Before committing into anything, understand your needs and your affordability. Look for alternative and compare the pros and cons.
I have come up with a simple worksheet to calculate return for endowment plan. Keep in touch with me and I shall email you.
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