Bangkok Bank Life Insurance Investment

[H1w4yR1da]

Bangkok Bank is offering 3%-5% on 6 yearly installments.

 

The attached form shows a yearly investment of 750k for 6 years on a total investment of 4.5m over 14 years with returns shown.

 

Can anyone with some financial expertise more than me give me your opinions?

 

Much obliged.

 

[Leaver]

Are they throwing in a free bar or condo with that?  ????

[Sophon]

Thai banks love those life insurance savings schemes, because as an investment they are very bad value (for the customer, not the bank). And because of the complexity of the scheme, very few customers are able to understand what they are signing up for, and believe they get a much better return on their investment than what they get in reality.

 

As mentioned, the scheme is complex and I won't claim that I necessarily understand it 100%, but I will give it a go. If I am wrong, everyone please feel free to correct any misunderstandings on my part.

 

Firstly, you are not "getting 3-5%" return on your investment. If you keep the investment until the end (after 14 years), you are guaranteed the amounts stated in the column "No dividend payment". On top of that you will/may get a bonus, the size of which depends on the rate of return that the bank is able to achieve on their investment of your (and other members of the scheme's) investment.

 

In the worst case scenario your investment of THB 4.5 mio will give you a return of THB 459,498 ("Summary benefits", column "No dividend payment"). And THB 60,000 of this amount is in form of a tax rebate, that you may or may not be able to benefit from. How much exactly this return on investment is as a percentage, is a little complicated to calculate (at least for me), because your investment is split into six annual deposits of THB 750,000, and you also get (small) cash returns every year over the 14 year period. But it comes out at less than an average return of 1% p.a. For comparison, if you deposited THB 750,000 every year for six years in an account paying 1% p.a., you would end up with a total interest of approx. THB 546.000 (assuming you are able to reclaim the tax). So you would end up around THB 97,000 better off by just putting the funds in a fixed deposit paying the aforementioned 1% p.a.

 

In the event that the bank is able to achieve an annual average return of investment of 5% p.a. you get the extra bonus of THB 1,066.432 mentioned in the document (column "5%"), so in total a return of THB 1,525,930. Depending on the way the funds are invested, achieving an average return of 5% p.a. over a 14 year period shouldn't be impossible for the bank (or even that difficult, investments in the stock market generally achieves such returns). A bonus of more than one million Baht on the surface sounds attractive. However, had you invested the money yourself (in e.g. an index based mutual fund) and achieved the same average return of 5% p.a., your THB 4.5 mio. would have grown to THB 7,914,000. So you would have achieved a total return of THB 3,414.000, or almost THB 2 mio. more than what you get with this scheme. Again, for comparison, if you can achieve an annual return on investment of just 2.5% on your own, you will end up with a similar total return as you will get from this scheme if the bank achieves a return of 5% p.a.

 

Also notice, that if for whatever reason you are unable to fulfill your commitment to the investment before maturity (e.g. if you get sick and have to return to your own country), there are severe financial penalties. If, as an example, you have to stop the investment after two years you will have invested THB 1.5 mio. in the scheme, but the surrender value of your investment is only THB 587,940. Including the small cash payments you will receive after year one and year two, you will get back THB 633,166 (see column: "Total benefit for surrender") out of your investment of THB 1.5 mio., so you end up with a loss of THB 866,834.

 

The only good thing you can say about these schemes is, that if you fulfill your commitment you are guaranteed not to lose money and will always end up with a modest return on your investment. However, if investing yourself in e.g. a broad equity based investment fund, you are extremely unlikely not to achieve a better return over a 14 year period than what this scheme will pay. My girlfriend (now wife) was tricked into signing up to such a scheme before we met, and lost about THB 50k when we withdrew her money.

 

Again disclaimer, I may have completely misunderstood parts of the document. If so, my apologies.

[Leaver]

It's basically a lousy savings plan with some life insurance attached.

 

If you need life insurance, just go and get a stand alone policy.  

[wordchild]

9 hours ago, Sophon said:

Thai banks love those life insurance savings schemes, because as an investment they are very bad value (for the customer, not the bank). And because of the complexity of the scheme, very few customers are able to understand what they are signing up for, and believe they get a much better return on their investment than what they get in reality.

 

As mentioned, the scheme is complex and I won't claim that I necessarily understand it 100%, but I will give it a go. If I am wrong, everyone please feel free to correct any misunderstandings on my part.

 

Firstly, you are not "getting 3-5%" return on your investment. If you keep the investment until the end (after 14 years), you are guaranteed the amounts stated in the column "No dividend payment". On top of that you will/may get a bonus, the size of which depends on the rate of return that the bank is able to achieve on their investment of your (and other members of the scheme's) investment.

 

In the worst case scenario your investment of THB 4.5 mio will give you a return of THB 459,498 ("Summary benefits", column "No dividend payment"). And THB 60,000 of this amount is in form of a tax rebate, that you may or may not be able to benefit from. How much exactly this return on investment is as a percentage, is a little complicated to calculate (at least for me), because your investment is split into six annual deposits of THB 750,000, and you also get (small) cash returns every year over the 14 year period. But it comes out at less than an average return of 1% p.a. For comparison, if you deposited THB 750,000 every year for six years in an account paying 1% p.a., you would end up with a total interest of approx. THB 546.000 (assuming you are able to reclaim the tax). So you would end up around THB 97,000 better off by just putting the funds in a fixed deposit paying the aforementioned 1% p.a.

 

In the event that the bank is able to achieve an annual average return of investment of 5% p.a. you get the extra bonus of THB 1,066.432 mentioned in the document (column "5%"), so in total a return of THB 1,525,930. Depending on the way the funds are invested, achieving an average return of 5% p.a. over a 14 year period shouldn't be impossible for the bank (or even that difficult, investments in the stock market generally achieves such returns). A bonus of more than one million Baht on the surface sounds attractive. However, had you invested the money yourself (in e.g. an index based mutual fund) and achieved the same average return of 5% p.a., your THB 4.5 mio. would have grown to THB 7,914,000. So you would have achieved a total return of THB 3,414.000, or almost THB 2 mio. more than what you get with this scheme. Again, for comparison, if you can achieve an annual return on investment of just 2.5% on your own, you will end up with a similar total return as you will get from this scheme if the bank achieves a return of 5% p.a.

 

Also notice, that if for whatever reason you are unable to fulfill your commitment to the investment before maturity (e.g. if you get sick and have to return to your own country), there are severe financial penalties. If, as an example, you have to stop the investment after two years you will have invested THB 1.5 mio. in the scheme, but the surrender value of your investment is only THB 587,940. Including the small cash payments you will receive after year one and year two, you will get back THB 633,166 (see column: "Total benefit for surrender") out of your investment of THB 1.5 mio., so you end up with a loss of THB 866,834.

 

The only good thing you can say about these schemes is, that if you fulfill your commitment you are guaranteed not to lose money and will always end up with a modest return on your investment. However, if investing yourself in e.g. a broad equity based investment fund, you are extremely unlikely not to achieve a better return over a 14 year period than what this scheme will pay. My girlfriend (now wife) was tricked into signing up to such a scheme before we met, and lost about THB 50k when we withdrew her money.

 

Again disclaimer, I may have completely misunderstood parts of the document. If so, my apologies.

a really good summary; these insurance linked schemes, that the Thai banks seem to love,  are always poor value for the customer and best avoided.

Exactly as Sophon says,  much better to devise your own regular savings scheme using bank deposits or mutual funds.

Edited October 17, 2020 by wordchild

[izod10]

Until paying out becomes the issue...no chance