Endowment Plan Disappointment

Dear Readers,

I am writing to share my disappointment and the broader lessons learned after the maturity of an endowment plan, I purchased from Great Eastern in 1999. The plan, which was intended to secure my financial future, has fallen far short of reasonable expectations, especially when compared to alternative savings methods and the inherent limitations of long-term commitments like this. I was told that I would receive maturity amount of 41,000.00 after 25 years based on the illustrations benefit and by the Financial Advisor.

Plan Outcome: A Financial Disappointment

Premium Paid: SGD 947 annually for 25 years, totalling SGD 23,675.

Maturity Payout (2024): SGD 33,234.09.

Net Return Over 25 Years: SGD 9,559.09.

Yearly Returns Computation Breaking down the net return over 25 years:

Annual Return (9,559/25) = SGD 382.36 per year

Annualized Interest Rate: Approximately 1.31% p.a., which barely outpaces inflation and significantly underperforms other low-risk alternatives.

Comparison with Fixed Deposits -

Over the same 25-year period, fixed deposit rates averaged 2–3% annually. If the same premiums (SGD 947/year) had been deposited into a fixed deposit account at a modest 2.5% interest rate, the maturity amount would have been approximately SGD 38,702 — outperforming the endowment plan by more than SGD 5,000.

Moreover, fixed deposits are:

Flexible: Unlike the endowment plan, fixed deposits allow early withdrawal (albeit with minor penalties) and offer liquidity in times of need.

Transparent: Fixed deposit returns are predictable and unaffected by discretionary bonuses or opaque insurance company decisions.

Illiquidity of Endowment Plans -

Endowment plans lock policyholders into long tenors (25 years in this case), making the funds inaccessible for emergencies. Early surrender incurs significant penalties, eroding both the principal and any accrued returns. This inflexibility often negates any perceived benefits of such plans.

Risk vs. Reward in Insurance Payouts -

The core promise of an endowment plan lies in its dual function as an investment and insurance product. However, the likelihood of receiving a significant insurance payout from such plans is statistically low:

Cancer Probability: The lifetime risk of developing cancer is approximately 1 in 5 for individuals, depending on age, lifestyle, and occupational hazards. This means that 80% of policyholders may never claim significant payouts for critical illnesses.

Lifestyle and Occupation Impact: Individuals with low-risk lifestyles or jobs further reduce their chances of triggering insurance payouts.

This data highlights that most policyholders are unlikely to fully utilize the insurance benefits they pay for, leaving the insurer to retain substantial profits.

How Insurance Companies Profit -

Insurance companies like Great Eastern operate on the principle of Other People’s Money (OPM) and a model akin to Options Investing:

Premium Collection: Regular payments from policyholders are pooled together.

Asset Investments: These pooled funds are invested in high-yield assets such as real estate, which generate rental income, and equities or bonds, which provide compounding returns.

Payout Disparity: Policyholders receive limited returns, while companies retain the majority of investment profits to reward stakeholders and shareholders.

This approach creates a significant imbalance: policyholders bear the opportunity cost of tying up funds for decades, while insurers leverage these funds to maximize their own profits.

This structure parallels the characteristics of options trading:

• Insurance Companies: Act like sellers of options, collecting premiums and minimizing payouts.

• Policyholders: Act as buyers, paying regular premiums but often receiving limited returns.

The profit margins for stakeholders remain high, while policyholders are shortchanged with low maturity payouts.

The Case for Insurance as Protection, Not Investment -

Endowment plans highlight the pitfalls of mixing insurance with investment. Based on my experience, insurance should serve its core purpose: protection. For those seeking affordable and meaningful coverage,

I strongly recommend:

Accident Insurance: Provides critical payouts for unforeseen events.

Total and Permanent Disability (TPD) Insurance: Offers financial support in life-altering situations.

Health and Term Insurance: Affordable premiums with high sums assured to safeguard against major medical and life risks.

These types of insurance ensure robust financial protection without the financial compromises of endowment plans.

Closing Thoughts -

This experience serves as a cautionary tale for others considering endowment plans serve as a stark reminder that the interests of policyholders often come secondary to profits. The illiquidity, low returns, and opaque bonus structures of such plans fail to justify their costs. As consumers, it’s vital to critically evaluate these products, weigh their real returns against inflation, and explore alternative investments such as index funds or savings bonds. Consumers should demand greater transparency and fairness from insurance providers and explore alternatives that prioritize genuine financial growth and protection. I hope my story serves as a wake-up call for others to make in

Update & Correction: Why My Earlier 1.31% Figure Was Wrong

In my earlier analysis, I initially estimated the annualised return of my Great Eastern endowment at around 1.31% p.a. That figure was incorrect.

The mistake came from treating my total premiums of SGD23,675 as though the entire amount had been invested upfront for 25 years.

The formula used was the standard CAGR formula:

CAGR = (Final Value ÷ Initial Value)^(1 ÷ Number of Years) − 1

Using my figures:

CAGR = (33,234.09 ÷ 23,675)^(1 ÷ 25) − 1

= approximately 1.37% p.a.

So even under that method, the correct mathematical result is about 1.37%, not 1.31%.

More importantly, however, CAGR is not the appropriate method for my endowment policy.

CAGR assumes the entire starting amount was invested at the beginning and remained invested throughout the full period. That did not happen in my case.

I paid only SGD947 on 22 December 1999, followed by another SGD947 every year, with my final premium paid on 22 December 2023. Therefore, each annual premium was invested for a different length of time.

The first SGD947 was committed for almost 25 years, whereas the last SGD947 was committed for less than one year before maturity.

The more appropriate calculation: XIRR

Because my premiums were paid on different dates, the correct way to measure my actual annualised return is XIRR — Extended Internal Rate of Return.

XIRR finds the annual return r that makes the present value of all my cash flows equal to zero:

0 = Σ [CFᵢ ÷ (1+r)^((Dateᵢ−Date₀)/365)]

where:

CFᵢ = each cash flow
Dateᵢ = the actual date of each cash flow
Date₀ = the date of the first payment
r = the annualised return

My actual cash flows were:

22 Dec 1999: −SGD947
22 Dec 2000: −SGD947
22 Dec 2001: −SGD947
…
22 Dec 2022: −SGD947
22 Dec 2023: −SGD947
12 Dec 2024: +SGD33,234.09

Using these exact dates and cash flows, the XIRR is:

2.5198% p.a., rounded to 2.52% p.a.

In Excel, this can be reproduced using: =XIRR(B2:B27,A2:A27)

where Column A contains the dates and Column B contains the corresponding negative premium payments and positive maturity payout.

Therefore, the more appropriate measure of my policy's actual annualised return is 2.52% XIRR, not 1.31% or 1.37% CAGR.

Although my Great Eastern endowment achieved an XIRR of approximately 2.52% p.a., I personally do not consider this an attractive return for committing to a 25-year policy.

The important distinction is that I am not claiming Great Eastern guaranteed me a 3%, 4% or 5% annual investment return. My original 1999 Benefit Illustration contained guaranteed and non-guaranteed components, and it used assumptions—including a 5% p.a. rate for accumulating certain cash benefits—that were not guaranteed.

Nevertheless, the illustration matters when evaluating the expectations I had when purchasing the policy. The illustrated total benefit was $41,341.84, whereas my actual maturity proceeds were $33,234.09, a difference of $8,107.75, or approximately 19.61%.

Based on my actual cash flows—25 annual premiums of $947 from December 1999 to December 2023 and maturity proceeds received in December 2024—the policy generated approximately 2.52% XIRR per annum.

To me, that return is modest for a commitment lasting a quarter of a century. It may have beaten ordinary bank fixed deposits over much of the low-interest-rate environment, and it appears to have remained ahead of long-term inflation. But those facts do not automatically make 2.52% an attractive return.

A particularly useful benchmark is CPF Ordinary Account, whose basic interest rate has a 2.5% floor. My endowment's 2.52% XIRR exceeded that floor by only 0.02 percentage point, or two basis points. The products are not directly interchangeable—CPF and an insurance endowment have very different restrictions and benefits—but the comparison provides useful perspective on the return I received.

My conclusion therefore is not that the endowment was a financial disaster. Nor would it be accurate to claim that a bank fixed deposit would definitely have performed better. Rather, I believe a 2.52% annualised return was disappointing relative to the length of the commitment and the expectations created by the original benefit illustration.

Had the policy actually delivered an annualised return closer to 3–5%, the compounding effect over 25 years would have been considerably more meaningful. This experience taught me to distinguish between illustrated returns, guaranteed benefits and the actual XIRR ultimately earned.