Hi Mr. Tan,
Insurers in Malaysia have introduced periodical-income endowment policies, which are called anticipated endowments. Currently, most anticipated endowments in the market pay out the guaranteed income annually, after a period of 10 years or so. Some even have shorten the period to every two years. The guarantee income payable ranges from 4% to 8%. eg.PRUcash, Do we have the same kind of insurance policy in Singapore?
REPLY
Many insurance companies have anticipated endowment policies, which have been sold in Singapore over the past 30 years. The annual payout comes from your premium. After deducting the high charges, the return on the anticipated endowment policy is poor.
Here is a simple example. An endowment policy requires a monthly premium of (say) $500. An anticipated endowment policy that requires a payout of (say) $2,400 may require a monthly premium of (say) $730. An monthly saving of $200 is needed to fund the payout of $2,400. But the additional premium is more than $200 as part of it goes to pay the expenses, including the agent's commission.
An endowment policy gives a poor return due to the high expenses. An anticipated endowment policy is worse. It is better to save the additional premium in a saving account to avoid the unnecessary charges.
Another example of this lousy product is NTUC's REVoSAVE. The return is so low from the cashback that it is better for you to save it under your bed.
ReplyDeleteImagine you give the insurer $3000 and out of the it the insurer refunds you $1700 as cashback(your own money). What happens to the $1300. From this you a get a miserable protection that you might not need but still you got to pay. They will give about 1.5% return if you lock in for 20 years and if you don't, you are finished, you better donate it to the company and the insurance agent.The largest cashback is at the last.This is to make sure you pay your premium faithfully to the end.
A simple way if you want that lousy cash back is to DIY. Using the $3000 as an example and imitate this lousy plan and i will show you get better return, flexibilty, higher protection and liquidity.
Instead of putting $3000, buy an endowment(i hate this product) with $1300, you get HIGHER RETURN AND PROTECTION than the revosave. The $1700 in your pocket, you can spend in any way you want. Ii is with you all the time, no need to wait for the insurer to give to you.This is true liquidity and freedom and not their definition of liquidity.(bullshit). If you want to enhance the $1700 put it in a money market fund to get about 3%. It is safe and solid and you access it ANYTIME YOU NEED IT.You can invest it too with a low cost fund.
So you see those anticipated endowment disguised as cashback or cashloss or revosave are up to; to cheat you of the better return and protection, and with the help of those unscrupulous agents to bluff you harder.
Don't understand why MAS allowed this kind of products to be sold indiscriminately to the poor and elderly people.They have been the victims of the malpractising agents.