More moderate return in the future

Hi Mr Tan

An agent from NTUC showed the advertisement on "Best Kept Secret" to me. The return of 6% on endowment plan is attractive. If I buy this plan, will I get 6% return for the next 20 years? This is better than other types of investments and give life insurance cover to me as well.

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MY REPLY:

The return of 6% was achieved during the past 25 years. Interest rate was high (say 6%-8% p.a.) during most of the past years, and the economy achieved high growth rates. The return on the life insurance fund averaged about 8% during these years.

Looking forward, I expect the investment yield to be more modest, maybe 6% p.a. After deducting for the cost of insurance and charges, I expect the return on whole life and endowment plans to be more modest, maybe 3% to 4% per annum. (But, I could be wrong!)

Still, the return from NTUC Income should be better than similar plans from other insurance companies, due to their lower expenses and higher bonus distributed to policyholders (remember: Income is a cooperative).

However, I usually advise people to invest in a flexible plan, such as the Ideal plan. You can read more about it in my FAQ: Financial Planning for the Young.