How about the Insurance Saving Plan?
An Insurance Saving Plan is call Endowment plans.
What is the Endowment plan and how’s work for you?
Endowment plans seem to have the reputation of being the ‘bad boy’ among financial planning products. You have probably encountered people who express regret at taking a lengthy endowment plan with seemingly low returns, often discovered too late after several years of payment.
If this sounds too familiar and you think you or someone you know has bought into a ‘bad’ endowment plan, this article is for you. Here are several things that you can and should do if you think your endowment plan sucks.
Consider why you think your endowment plan is bad in the first place
Before we ask why it is a bad endowment plan, it is important to understand what an endowment plan is.
- An endowment plan is a plan where you contribute regular amounts of money to a time period, or a lump sum at the start of the plan.
- At the end (provided you survive to the end of the policy term), you’d get a lump sum amount upon policy maturity and hopefully more than what you originally put in.
It’s often touted as a plan to force you to save so that you can achieve certain financial goals, e.g., children’s education, retirement, etc.
It’s designed to be very flexible which further adds to the complexity. If you asked 10 people what an endowment plan is, you will get 10 different answers. Some say it’s for savings, others will say it’s for investments, and others think it’s a combination of both with neither’s benefits.
As such, there will be various reasons why you think it’s a bad endowment plan:
- You need to pay monthly/yearly and you are constantly racked with the uncertainty of returns upon maturity
- Misunderstand on the Guarantee Cash Payment % is the real of return of the saving plan by some financial adviser.
- There is no liquidity, i.e. your money is stuck in the plan until maturity
- You think you can do better, after reading investment blogs and going through self-studying
- Turns out you already have insurance coverage and are paying for something that you don’t need in the endowment plan
- You are in a bad financial situation and cannot continue with the payment
Evaluate the future reward
To evaluate whether it’s worth continuing the policy, it’s best to look at the actual numbers. Firstly, you can track the performance of the policy via the Annual Bonus Update that the company sends to you (ask your financial adviser for it). It’ll provide details about the performance of the investment. On top of that, you will know if there are any bonuses given to you. Not many people do this, but you can request an updated benefit illustration to reflect the new estimated non-guaranteed benefits.
Despite the reputation of endowment plans not reaching their projected amount, is the returns that bad upon maturity? According to the policy schedule, the returns at the end of various plans’ tenure ranged between 2.5 to 4.5%.
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Speak to your financial adviser
If you’re having doubts, you should check with your financial adviser to explore options you can take. For example, you can use the cashback/coupon to offset the premiums temporarily. You can also ask the adviser for premium holidays, which can buy some time until your cash flow returns to normal without terminating the plan. Bear in mind doing these will affect your policy’s rate of return in the long run. Never ask for a policy loan – it defeats the purpose of going on this plan in the first place and it has quite a high-interest rate.
However, if you happen to be one of them who got the raw end of the deal and your financial adviser disappeared, you’ll have to figure out a way to contact the person in charge of your portfolio instead. Go ahead and give your insurer a call.
Let it lapse, terminate it, or surrender it
Finally, if all else is not an option, there is no choice but to discontinue it. That said, it’s never the best idea to let your plan die or surrender it prematurely. You’ll just have to cut your losses at this point, and hopefully, things get better at a later life stage. However, it’s incidences like these that put people off financial planning – these situations are the source of those bad hearsay stories that you hear from friends and family.
That’s all folks
I hope our article sheds some light on the things you should consider if you think you have a bad endowment plan. Don’t get us wrong – we’re not bashing endowment plans at all. Every product serves a purpose, and endowment plans are no different.
If you’ve questions on financial planning, you can refer our consultant to have a customized Saving Plan following your Financial Goals.