Help! Keep or stop my Endowment policies?

[OldZmann]

Hi everyone.

I would like your advice/thoughts on whether I ought to continue with or stop my endowment policies.

I have about 25 years of work before retirement. I just started a 3-fund ETF portfolio as advocated by Shiny, BBCW, among others. I am also sufficiently covered by medical insurance, Term Plan and Disability Insurance.

I bought three Endowment policies 8.5 years ago, when I was completely clueless about DIY investing. Based on the annual bonus declaration reports, all of them seem to allocate the fund assets in the following way: about 73% in fixed income; about 20% in equities; and the rest in properties, cash, etc.


Here is some information about my policies (Year 2020 = year 0) (SV = surrender value):

Policy 1 - (yearly payment of $4080 for another 11 years; no premium after that)
(at the end of 27th year (age 65), total premiums paid = $53K;
$75K guaranteed SV; $85K non-guaranteed SV at 4% returns; total $160K)

Policy 2: (yearly payment of $3840 for another 16 years)
(at the end of 16th year (age 55), total premiums paid = $95K;
$79K guaranteed SV; $81K non-guaranteed SV at 4% returns; total $160K)

Policy 3: (yearly payment of $3720 for another 22 years)
(at the end of 27th year (age 65), total premiums paid = $109K
$147K guaranteed SV; $31K non-guaranteed SV (at 3.75% returns);
$118K non-guaranteed SV (at 5.25% returns)


As you can guess, most of my cash meant for saving towards my retirement is used to pay these 3 policies. My concern now about these policies is how likely will the company payout the non-guaranteed SV portions? Or, what are the chances that the SV portions will be reduced? There are about 2 decades or more before the policies mature, and a lot of changes can be implemented by the company during this time that affect SV.

I did consider stopping all policies now and channeling the cash into my newly-started ETF portfolio. However, stopping the policies now will cause me to incur a loss of about $45K. Will I be able to re-coup this loss in the long run?

I will really appreciate your thoughts on this matter. Thanks!

 

[flyingco]

Hi everyone.

I would like your advice/thoughts on whether I ought to continue with or stop my endowment policies.

I have about 25 years of work before retirement. I just started a 3-fund ETF portfolio as advocated by Shiny, BBCW, among others. I am also sufficiently covered by medical insurance, Term Plan and Disability Insurance.

I bought three Endowment policies 8.5 years ago, when I was completely clueless about DIY investing. Based on the annual bonus declaration reports, all of them seem to allocate the fund assets in the following way: about 73% in fixed income; about 20% in equities; and the rest in properties, cash, etc.


Here is some information about my policies (Year 2020 = year 0) (SV = surrender value):

Policy 1 - (yearly payment of $4080 for another 11 years; no premium after that)
(at the end of 27th year (age 65), total premiums paid = $53K;
$75K guaranteed SV; $85K non-guaranteed SV at 4% returns; total $160K)

Policy 2: (yearly payment of $3840 for another 16 years)
(at the end of 16th year (age 55), total premiums paid = $95K;
$79K guaranteed SV; $81K non-guaranteed SV at 4% returns; total $160K)

Policy 3: (monthly payment of $3720 for another 22 years)
(at the end of 27th year (age 65), total premiums paid = $109K
$147K guaranteed SV; $31K non-guaranteed SV (at 3.75% returns);
$118K non-guaranteed SV (at 5.25% returns)


As you can guess, most of my cash meant for saving towards my retirement is used to pay these 3 policies. My concern now about these policies is how likely will the company payout the non-guaranteed SV portions? Or, what are the chances that the SV portions will be reduced? There are about 2 decades or more before the policies mature, and a lot of changes can be implemented by the company during this time that affect SV.

I did consider stopping all policies now and channeling the cash into my newly-started ETF portfolio. However, stopping the policies now will cause me to incur a loss of about $45K. Will I be able to re-coup this loss in the long run?

I will really appreciate your thoughts on this matter. Thanks!

My last look at endowment policies is that it takes approximately 13 years to break even.

I do buy in endowment policies if they are past 20 years as the interest is good. But at 8.5 years, I would not buy.

But if you have family, I would suggest you carry on and still pay it especially during this few years. The payout is still there.

 

[foxer77]

If u were to opt out u lost a lot of money. At least upon matural u should get back at least near to the principle u paid.


Nowsday ,I will never buy endowment as even the policy matural the projected interest is often not meet
I rather do my own investment then getting lock down My cash for decade .

 

[BBCWatcher]

If u were to opt out u lost a lot of money.

No, not necessarily. The money is already lost if it's lost. We can only make decisions from this point forward.

There's a concept in behavioral economics called the sunk cost fallacy. It's important not to get too hung up on sunk costs. "Saving (financial) face" can be really, really damaging in certain cases.

....So, what's the right decision now, going forward? That ought to be the focus.

 

[platee]

That's the problem. Even if I were to buy endowment, will be max 10years. 20years really too long for such returns.

 

[maple96]

Hi everyone.

I would like your advice/thoughts on whether I ought to continue with or stop my endowment policies.

I have about 25 years of work before retirement. I just started a 3-fund ETF portfolio as advocated by Shiny, BBCW, among others. I am also sufficiently covered by medical insurance, Term Plan and Disability Insurance.
!

Read this https://dollarsandsense.sg/importan...6fnnOMqBzvovQD3ZM8C5Z0ykNmg1JgLiTCGdd_micqeD0

U believe they will teach u the secret to making money if it works without any hidden motives?

Are u sure u are not jumping out of the frying pan into the fire?

How long will u need to invest with profits to make back the loss?

Are u sure u are guaranteed to make money from those risk investments? If so, why not make back what u will lose first before u terminate?

Endowments are not sunk costs, u are guaranteed to recover your capital on maturity, some even with returns, depends what are those endowments which u did not name.

It is your money, your future, make your own decisions.

 

[Mecisteus]

Here is some information about my policies (Year 2020 = year 0) (SV = surrender value):

Policy 1 - (yearly payment of $4080 for another 11 years; no premium after that)
(at the end of 27th year (age 65), total premiums paid = $53K;
$75K guaranteed SV; $85K non-guaranteed SV at 4% returns; total $160K)

Policy 2: (yearly payment of $3840 for another 16 years)
(at the end of 16th year (age 55), total premiums paid = $95K;
$79K guaranteed SV; $81K non-guaranteed SV at 4% returns; total $160K)

Policy 3: (monthly payment of $3720 for another 22 years)
(at the end of 27th year (age 65), total premiums paid = $109K
$147K guaranteed SV; $31K non-guaranteed SV (at 3.75% returns);
$118K non-guaranteed SV (at 5.25% returns)

1) You are adopting an expensive way to create a retirement fund.

Your above data is not so clear.

2) Policy 3 is monthly $3,720?

3) You should state,

i) How many months are you into the policy?
ii) Limited pay endowment plan? ie 25 years policy but pay 10 years only?
ii) The latest surrender value? Call insurer to give you the figures.

Example:
Limited pay 25 years endowment plan. Pay for 10 years only
Monthly premium = $X
# of months paid = Y
Current surrender value = $A
Maturity value = $G and $NG

 

[OldZmann]

1) You are adopting an expensive way to create a retirement fund.

Your above data is not so clear.

2) Policy 3 is monthly $3,720?

3) You should state,

i) How many months are you into the policy?
ii) Limited pay endowment plan? ie 25 years policy but pay 10 years only?
ii) The latest surrender value? Call insurer to give you the figures.

1) Agree. When I started these policies 8 years ago, I was totally clueless about the basics of investing. So, I bought these policies believing that this was the least risky way to save up for my retirement. Fortunately or unfortunately, I am now aware of the costs inherent in such policies.

2) Sorry, typo error! It should be yearly. I have edited the main post.

3)
(i) 8 years (96 months) for all
(ii) only Policy #1 requires me to pay for another 11 years, after which I wait another 16 years for payout. The rest will payout after maturity and do not have 'pay-and-wait' features.
(iii) latest surrender values are: Policy #1 $20K; Policy#2 $17K; Policy#3 $9K

 

[OldZmann]

No, not necessarily. The money is already lost if it's lost. We can only make decisions from this point forward.

....So, what's the right decision now, going forward? That ought to be the focus.

BBCW, could you elaborate on 'money is already lost if it is lost'?

What would you suggest for going forward?

 

[binary_0011]

Here is some information about my policies (Year 2020 = year 0) (SV = surrender value):

Policy 1 - (yearly payment of $4080 for another 11 years; no premium after that)
(at the end of 27th year (age 65), total premiums paid = $53K;
$75K guaranteed SV; $85K non-guaranteed SV at 4% returns; total $160K)

Policy 2: (yearly payment of $3840 for another 16 years)
(at the end of 16th year (age 55), total premiums paid = $95K;
$79K guaranteed SV; $81K non-guaranteed SV at 4% returns; total $160K)

Policy 3: (yearly payment of $3720 for another 22 years)
(at the end of 27th year (age 65), total premiums paid = $109K
$147K guaranteed SV; $31K non-guaranteed SV (at 3.75% returns);
$118K non-guaranteed SV (at 5.25% returns)

lot of commitments sia, mine is $10,000 every year but for 10 years only, 1 month save $1000 is okay for me. 10 yrs is ok for me, not a long commitment . it's like that, pay more, commit less, pay less, commit more.

 

[TiedInsurer]

BBCW, could you elaborate on 'money is already lost if it is lost'?

What would you suggest for going forward?

Sunk cost fallacy means that you shouldn't "throw good money after bad money". If you've made a bad decision previously, that caused you to lose money, the money that is already lost should not influence your future decisions.

A common example in layman investors is their reluctance to close out investment positions at a loss. So for example, they bought a stock at $10. That stock subsequently falls to $9 in a financial downturn. Meanwhile, a new investment opportunity comes up, that is likely to make a much better return. The logical thing in such a scenario, is to sell that stock at $9 and eat the loss, in order to buy into the new investment oppurtunity. However, some laymen will insist on holding on to this stock, because they refuse to close out the position at a loss. Instead they wait for the stock to go back up above $10, so they can close it at a profit. It's true that they may eventually make a small profit from the stock by doing this, but they have lost out on the potential to make even more money, because they didn't buy into the new investment opportunity.

It's the same thing here. The $45k loss you will have to eat if you terminate these endowment plans now, should not factor into your decision. All you should think about, is whether you think you can take the surrender value (and any future payments you need to pay in) of the endowment plans, and turn it into even more money then the endowment plans promise to you.

E.g. You have an endowment plan that requires you to pay in a further $1k every year for the next 5 years. Then in 2025, you think the endowment plan will be able to give you back $30k, in guaranteed and non-guaranteed payments. You will get back $20k right now if you terminate it.

When you are deciding whether to terminate this plan, you don't even need to think about how much you have paid in so far. All you need to consider, is if you are able to take the $20k surrender value, plus the $1k/yr for the next 5 years, and turn it into more than $30k by 2025 yourself. If you think you can do it, just surrender the plan and go invest yourself. If you don't think you can, just continue keeping the plan.

 

[pineapple tarts]

How is the policies performing currently? Can it beat cpf special account 4% rate?

 

[Mecisteus]

1) Agree. When I started these policies 8 years ago, I was totally clueless about the basics of investing. So, I bought these policies believing that this was the least risky way to save up for my retirement. Fortunately or unfortunately, I am now aware of the costs inherent in such policies.

2) Sorry, typo error! It should be yearly. I have edited the main post.

3)
(i) 8 years (96 months) for all
(ii) only Policy #1 requires me to pay for another 11 years, after which I wait another 16 years for payout. The rest will payout after maturity and do not have 'pay-and-wait' features.
(iii) latest surrender values are: Policy #1 $20K; Policy#2 $17K; Policy#3 $9K

I am trying to help you to calculate.

Your total premiums paid don't tally from my calculations.

What are your actual monthly premiums for policy 1, 2 and 3?

I believe your policy 1, 2 and 3 are 24, 24 and 30 years policy? Policy 1 is pay for 19 years only?