Saturday, November 03, 2012

Buying an endowment policy

    • Dear Mr Tan,
      I am considering buying a saving endowment policy for my daughter. Would like to ask what is the difference between buying insurance from a bank and agent?

  • 5 minutes ago
    Tan Kin Lian
    • Most endowment policies give a poor return to the consumer, due to the high charges taken to pay commission to the agent and other expenses. This applies to buying from an agent or the bank - the charges are the same.

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zhummmeng said...

The question isn't about buying from a bank or insurance agent but why are you buying an insurance for your daughter.
Are you putting the cart infront of the horse?
Are you already adequately insured in all the areas of personal risks?
If you are not fully insured in the 4 areas of risks you shouldn't be buying insurance for your children other than the medical insurance using CPF.
If you should die or afflicted with disease but without adequate insurance what good is your daughter having an endowment?
Endowment is a rotten saving plan too...from any company or bank. Avoid buying it. You can do MUCH BETTER investing regularly in a recurring single premium plan or RSP. You get cash value straight away and breakeven very soon , may be days.
For an endwoment your first 2 years
premium goes into the agent's pocket and the company.After that then your saving begins and it crawls to reach a measly return much below inflation after many . years.THE OUTCOME IS NEGATIVE REAL RETURN.

Terence Soon said...

zhummmeng, you are very knowledgeable in financial products. However, I think if I'm an outsider who knows nothing about insurance, I would not fully understand your post. No offence by the way :)

Ma'am, I would suppose you are buying an endowment to use it as a savings plan for your daughter for her university education? It's obviously great that you are planning her future for her, however do note that your daughter now does not require any life insurance. Yes, medical is a must. But let's look at the purpose of owning a life insurance policy. It is to provide you with sufficient finances in the event of untimely death or permanent disability.

Your daughter (I suppose she's still very young) would have no dependents. In fact, she is your dependent. So the most important thing is to insure YOURSELF in case anything happens. If anything bad were to befall her (touch wood), the medical insurance would be sufficient for the hospital bills. She does not support your family financially, so there is no need to have life insurance since the purpose of it is INCOME REPLACEMENT. Please take note of that.

Since now we have established the fact that you want to save up enough money for her, then you should explore other avenues which can provide higher forms of returns. As zhummmeng has kindly pointed out, you can consider investing in single premium products. A single premium means that you are investing your money in one lump sum, instead of putting in smaller amounts every month. A recurring single premium allows you to invest regularly as well, but there is an advantage to this in the form of lower sales charges. This should provide you with significantly more money after a period of time.

If you insist on buying life insurance for her, do consider getting a 15 or 20 year term policy as the amount you will be paying is about 20 times lesser than you will be paying when you buy an endowment plan. This is so that by the time she is financially independent, she is able to afford her own insurance :)

And of course to answer your initial question, the difference when buying insurance from an agent is that there is a higher likelihood that he will stay on with the company, as compared to a bank person. Personal banker associates (typically the ones who sell insurance) have extremely high turnover rates, so the chances of your endowment being serviced throughout its term is almost nil. Regardless, please take note of the downsides of getting an endowment policy. All the best!

Kin Lian Tan said...

Most parents want to set aside savings for their children - maybe for education, for marriage or other purpose.

An endowment policy was the traditional method used in the past to set aside the savings. However, the endowment policy now provide a poor return, usually not sufficient to cover inflation, and should be avoided.

A better choice is to open a share account for the child and to buy the STI ETF (which is an indexed fund invested in the top 30 shares in Singapore) for the child. The account can be in the joint names of the parent and the child.

Attend the FISCA talk on investment and financial planning to learn about how this can be done, and how to manage the risk of investing in shares.

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