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.
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 informed financial decisions.
