Endownment Plan

[tigerbeer]

Hi everyone, hoping to get some advice here. Just sat down with my insurance agent and we were looking to put some money to an Endownment Plan instead of the money sitting in the bank. Here are the details,

Yearly Payment of 53,616 for 20 years.

Returns at the following years:

Year 5 - 80,000THB

Year 10 - 120,000THB

Year 15 - 200,000THB

Year 20 - 800,000THB

Life coverage is b400,000THB for loss of life with this plan.

Also this is packaged together with a Health Insurance..

IF we package the Health Insurance with this Endownment plan, the premium would be 17,419THB per year.

If we take the Health Insurance alone without this Endownment plan, the premium would be 25,246THB per year.

so the savings of 7,827THB per year on Health Insurance if we do the plan.

i really need help figuring out what kind of return would i be looking at for the Endownment part. Banks are not paying much as interest anyways. Anyone out here with some advice?

TB

[lanny]

You don't provide enough information to calculate the true cost of the endowment. You need to know what it would cost for a level premium term life insurance policy of the same face value.

You would be paying for three things: 1. A mortality charge, for the insurance itself; 2. A health insurance premium; and 3. The investment in the policy value.

I did think the stated values seem a bit strange. In the first five years, when the typical policy is applied against sales and administrative costs, you would accumulate 80,000 baht. Then, in the next five years, you accumulate just 40,000. Finally, in the last five years, the value jumps 600,000 baht!

[sweetchariot]

We scrapped endowment plans in the UK many years ago, and for good reason.

You will find much better value organising your insurance and investment separately.

Reasons not to buy an endowment:

1. Poor value for money. Your mortality cost is actually reducing over time, as the fund value grows they only need to insure the difference between the fund value and the sum assured, so to get a true cost you would need to look at a decreasing term assurance.

2. Charges. These kind of plans will generally charge a 5-6% bid/ offer spread, 1.5-2% annual management charge, plus an inflated mortality cost (see1. above), as well as early surrender penalties in the first 5-10 years. That means simply to make a penny profit the investment managers have to make probably in excess of 10% per annum.

These ridiculous costs go to pay a similarly ridiculous commission to the broker (about 18 months premiums)

3. Poor performance. These type of plans generally invest in 'managed funds', which are generally passively invested, and quite often run by computers. Passive investment means when markets fall the computer says sell sell sell (selling low), and when the market rises the opposite (buying high).

4. Tax inefficient. Not knowing where the investments will be based it is hard to comment on this one, but I will bet wherever they are you will find a more tax efficient solution.

I was going to add 5. Over inflated returns, but at least they are being honest that this will actually cost you money. Referring to 2. above I would guess they have used a predicted growth rate of 7% pa? Also consider inflation, 800k in 20 yrs will probably buy you a new motorbike.

At zero risk and zero return you would need to save 40k pa to get back 800k in 20 yrs. That leaves you 13,616 to buy some decreasing term assurance. Invested wisely you could probably get this down to 30k pa, leaving you 23,616 for life cover, which I suspect will leave a few thousand in your pocket.

[tigerbeer]

thanks everyone for your advice. will advice my missus on not taking the endownment plan. but its up to her. i rather just save in the bank and perhaps invest part of it in some low risk investments. thanks again guys. if anyone else has anything to add, it would be appreciated.

[chiangmaibruce]

I agree with what the previous poster said, except for the statement that passively-managed 'managed funds' = poor performance. Look for example at the company called "Vanguard" known for their passively managed index funds which offer generally quite respectable returns. You could do worse than invest in one or more such funds directly yourself and cut out the middle man and his big slice of commission. Managed funds come in many forms and I am sure you could find one to suit your appetite or aversion to risk.

That said however I don't know enough about your personal/family situation to presume to offer any kind of recommendation. Making sound choices about personal risk insurance means considering many more factors than just premiums and payouts. The best start is always a session with a really competent financial planner - rather than an insurance broker. In Australia there are a lot of very ordinary financial planners, and just a few good ones. Financial planning remains in its infancy here in Thailand so finding someone who is competent, professional and not purely driven by commissions, might not be easy. I would be surprised though if some TV regulars couldn't point you in the right direction.

Endowment funds are all but dead and buried now in Australia also (with the notable exception of many Asian-Australians who still like the concept). There are now so many more investment and insurance options. In contrast, when I met with representatives of AIA here in Thailand, endowment style policies were the ONLY life insurance option presented to me.

A good endowment policy represents forced saving and they can be suitable for one type of person - those who are not particularly astute with financial matters and/or lacking in discipline re: saving/budgeting. No-one wants to admit they are in this category of course. It is all very well to say that I could put the money that I would have spent on premiums for 20 years and invest it in shares (etc) and I would make $xxx, and this will cover me if I get sick (etc) and I will come out so far in front. BUT in reality some people just have to get that new TV, that car, that holiday. Twenty years go by, and gee whiz, the cupboard is empty.

Good luck with your decision - it is an important one.

- CB

[dave111223]

I was looking at a similar plan and put all the payments and payouts into excel.

Then along side it i set up a column if i just stuck the same payments into the bank at like 2% and withdrew the same payouts at the same time.

Putting it in the bank was a better return.

The endowment only made sense if you die within a certain time frame (ie first 5 years or last 2 year or something). Otherrwise you would have had more money in the bank than the endowment paid out on death.

[Khun ?]

These type of investments are nothing but a salesmens dream. This is what alot of the Thailand and other

expat advisors push.

Never have investments tied to your insurance. neither are good enough to stand on their own and two losers together make it no better. Stay away from firms that sell such products, they have no interest in other

than commisions off what ever means available, mostly poor investments.

[tonydabbs]

I sold life insurance in the States and I agree that I considered endowments to be a very poor way for saving money. I sold life insurance for family, business and estate protection.

In Thailand, though, the situation might be different, if I can believe what I read. (I really haven't thought it out) Bank accounts here pay low interest and the interest you earn is taxable as income. The supposed benefit of an endowment is that neither the cash build up nor the proceeds are taxed.