* the yield of the underlying assets of the fund (insurance fund or unit trust)
* the charges that are taken away from the earnings
If you invest in a well diversified fund of equities and bonds, you can expect an average return of 5% per annum (during a low interest rate environment).
You have the following options:
* invest in a low-cost unit trust with an expense ratio of 1%
* invest in a low-cost endowment plan with a expense ratio of 1.5%
* invest in a high-cost endowment plan with an expense ratio of 2.5%
An endowment plan has a higher ratio, compared to a unit trust, as it has to provide for the death benefit. I estimate it to be an additional 0.5%.
The difference in expense ratio between a low cost endowment and a high cost endowment is the commission that is paid to the agent. Most endowment plans in the market pays high commission to the agent. I estimate that it will add an additional 1% to the expense ratio.
This is what you can get, by saving $2,000 yearly for 30 years:
Plan Expense Net Maturity
margin yield amount
Unit trust 1.0% 4.0% $136,200
Low cost Endowment 1.5% 3.5% $105,000
High cost Endowment 2.5% 2.5% $ 89,000
For a 30 year investment, the difference in the maturity amount is 18% (ie $105,000 compared to $89,000).
Lesson: If you to invest for the long term, look for a unit trust or endowment plan that have a low expense ratio, so that you can earn a better maturity amount.