In the longer term, I absolutely agree that savings/investments should be separated from protection. Do not get me wrong. I myself only have term plans while my returns come from my forex trading.
Endowments can be useful in the case of say, a sole bread winner, with a very clear goal. For instance, he is saving for his son's education. Now, putting into an ETF/Index is not likely to fail over a long duration, but it doesn't guarantee that when it is time to pay for his son's education, the ETF/Index would be green or positive. That is when an endowment can come in useful. Look at how long it took for the dotcom bubble burst to be recovered.
Also, endowments provide additional help should it be a scenario of a sole bread winner and he/she passes on. For instance, if someone takes up an endowment and unfortunately passes on within the year, there are endowment plans that can pay around 3x the premium. No lower-risk investment will be able to double or triple the capital within that duration.
I'm not an insurance agent, I am not keen to think of 101 scenarios so as to cross-sell endowments or encourage it as a wealth solution. But endowments can have a place in portfolios. I know of someone financially very savvy and his name is actually on the annual reports of a local bank. Yet he has bought at least an endowment plan within the last five years. Obviously I cannot divulge how I know of this and who it is, so take this at face value.
My point here is not to be pro or anti endowment/insurance. Before launching into a tirade against something, it would actually be more prudent to decide the goals (which we still have no idea what is TS' goals) and to consider options before brushing them off.
If a seasoned banker (and no, not being sarcastic) can allocate some of his funds to endowments, I don't see why an endowment is beneath anyone. Buying an endowment doesn't make you stupid, nor does it make you smart. Investing in an ETF doesn't make you smart, nor does it make you stupid. Knowing what you need and going for it is what matters.
Thanks for taking the time to share, I appreciate it.
In case of death of sole breadwinner, I believe a simple term insurance would pay out more than the three times of an endowment premium, at a lower cost.
It's also a case of risk appetite. Yes, you're right that an equities-bond portfolio may suffer a catastrophic loss near the time of fund utilisation, but like you said, over a long enough timeframe, that is less likely. Personally I find that endowments are more suited for lazy people or people that are spendthrifts and need something to tie up their monthly salaries. But this is a weak argument, and not a moral one. These people need to be educated, and not have their hard-earned money subject to sub-par returns; an RSP into passive index tracking funds with early withdrawal penalties would suit them more than just chucking money into endowments "long-term".
I think while we agree on the segregation of investment/savings and protection functions, clearly, we disagree on endowments =) and that's fine. My view is that endowments are an antiquated product that should be phased out. It was conceived in a simpler time when financial markets did not offer much variety, and our parents and grandparents either did not have the knowledge or the access to place their money in a better vehicle. Also let's not forget that forty to fifty years ago, interest rates were much higher and so insurance firms likely offered a better return than in the current ZIRP environment we are in. Perhaps one day in the future after a period of hyperinflation and rate-raising, we should all pile onto thirty-year bonds and endowment plans and that's our retirement sorted.
I personally think that financial planning is a very important topic and is one that everyone needs good advice on. Unfortunately, most financial planners and/or insurance agents in Singapore don't really provide products that is to the benefit of their clients. And this is not entirely their fault; they have sales targets to meet, and so they have to push the products that the insurance firms want them to push. That typically means the most profitable product, rather than the simple ones that are best suited to the customer. That understandably (and I would also argue, justifiably) generates a lot of the insurance hate that you see here.
I've often hoped that the regulators such as SEC and MAS etc would focus their firepower on insurance firms on the issue of premiums and fiduciary responsibilities after they were done with the banks. But clearly, they've not sorted the banks out yet, and cryptocurrencies are probably taking up most of their time now. There is a need to reform the incentive structure of the insurance firms so that agents can make an honest living out of selling suitable products.
Local consumers will have to be educated too because we are complicit in the current model; we don't want to pay any itemised fees for good advice, so we "willingly" suck up paying exorbitant premiums for the insurance product. This is analogous to how we are selling our own personal data in order to access Facebook or use Google Cloud storage for "free". If I'm not financially savvy, I wouldn't mind paying an untied, competent, honest IFA an annual retainer to review my financial affairs yearly, and who doesn't make any money off whichever product I finally settle on buying. CFPs in America can do this better than what we can access here in Singapore.
As for your acquaintance who is the named officer of a local bank, he or she is clearly doing very well for themselves. They have the resources to put a portion of their earnings into endowments for whatever reasons, and it's unlikely to be a huge chunk of their networth. Let's also bear in mind that the HNWs can, and should, be more defensive with the wealth that they've built up as they have more to lose. The cynic in me thinks that the endowment was bought to support a relative just starting out in the insurance business. Or for estate planning purposes (although I'm not sure how; I raise this point just to cover any unexpected tax benefits the policy could bring). However the average person on the street does not have this kind of financial resources. They have to allocate their earnings efficiently; every dollar a parent spends on endowment premiums is something they have to cut out of what they can afford for their children elsewhere, say in terms of additional enrichment classes, or annual travels to see the world. But agents are still targeting them for endowments, and this comes back to the insurance hate again.
Ultimately the key is to actively educate oneself, and remain skeptical of people who try to sell you financial products. MM forum here is quite useful for this kind of information sharing. And as much as I try to remind myself to keep an open mind, sometimes there are wrong answers and we need to call it out strongly and unequivocally, otherwise people won't change and unscrupulous agents will use the ambiguity to incite the fear and greed of people to make their sales.
