Does your Insurance Saving Plans (Endowment) give you 3 to 5% returns?

Insurance companies says that you can achieve higher savings returns from endowment, that it is a long term savings strategy. Are they as what they touted to be?

Does your Insurance Saving Plans (Endowment) give you 3 to 5% returns? QOLNMvq

Insurance savings plans or Endowment plans are plans designed by insurance companies with an objective to provide and meet long term saving goals.

The assured (in this case you, or someone) pays the insurance company a fixed sum of money monthly, quarterly or yearly, or a one time amount.

The insurance company will return you a sum of money upon maturity, which could be 15, 20 or 30 years. Some endowment plans are designed to pay out after certain duration.

I am always fascinated about the returns of endowments. They are sold to us as a great instrument to meet certain long term saving goals such as children’s University tuition fees, retirement.

The illustrations by the insurance agents and company often tout 3 to 5% returns.

As a data driven person, I wonder if the reality of the returns is close to this.

If they are close to this range of returns then they are decent saving products. They are doing what they are being touted.

However, if they do not then the majority of the savers are being sold a hope.

I grew skeptical when two of my acquaintance told me their saying endowment yields them a low amount.

Two Examples

One, a project manager, said his endowment from Great Eastern is losing money sine he bought it in 1993 and matured in 2013 (20 years).  I took a look and  it turns out he is not losing money.

But the annualized return is 0.9%.

I was taken a back by that figure. I thought I am not factoring in some cash back.

That is until a reader told me about her  policy bought during the period.  Her calculation was that it yields here roughly 1%. This reader was rather well verse in finance.

I was astounded with the figures.

Endowment primarily invests in fixed income or bonds and for the majority the rates have been falling which means values are going up.

Also in this period you could possibly still invest in 10 to 15 year duration bonds yielding 3 to 4%.

This kind of return has to be a mistake. Indeed, upon re-evaluating, the returns aren’t THAT bad as far as 1%. It is how we derive the returns. If we take it as a lump sum return, it looks bad, but the premiums are paid over 10 to 18 years, so the calculation of returns is different

Reader’s Policy 1

My reader is kind enough to provide the following:

  • Name:  Manulife
  • Start Year: 2002
  • End Year: 2007
  • Duration: 5 Years
  • Premium Paid: $10000 lump sum premium
  • End Value: $11700
  • The returns you get: 3.2%
  • Does the plan have any cash back or return: No cash back

Reader’s Policy 2

  • Name:  Manulife
  • Start Year: 2003
  • End Year: 2013
  • Duration: 10 Years
  • Premium Paid: $6000 annual. Total 60,000
  • End Value: $68,000
  • The returns you get: 2.76%
  • Does the plan have any cash back or return: No cash back

A Family Member

Here is an endowment bought by a family member:

    • Name: Golden Lion Endowment
    • Start Year: 1991
    • End Year: 2009
    • Duration: 18 Years
    • Premium Paid: $1244 annual for the endowment portion.Total for 18 years $22392. Rider and permanent disability another $356 more
    • End Value: Roughly $29000
    • The returns you get: 2.96%
    • Does the plan have any cash back or return: Yes. But they are reinvested back. (Yr 3 1.5k, Yr 6 1.5k, Yr 9 3k, Yr 12 3k, Yr 15 3k)

We do not have good enough data out there

The problem is I couldn’t disprove this as the insurance companies do not reveal the data of their past endowment returns.

If the returns are around 3 to 5%, they fit  group of wealth builders, with a certain risk profile.

We are not comparing against other assets classes and instruments, we are comparing against what is touted.

Let’s Work Together

I am reaching out to you.  We would like to consolidate a data bank of past matured endowment returns so that, we,  the wealth builders, can be better informed.

You can comment below or email me at drizzt@investmentmoats.com and tell me your thoughts of past endowments you bought, or friends,  parents or acquaintance bought.

Do provide the following :

  • Name of policy
  • Start year
  • End year
  • Duration
  • Premium paid (whether it is monthly, quarterly and  yearly)
  • What is the end value
  • The returns you get
  • Does the plan have any cash back or return
  • If there are cash back how much is it

I am looking forward to hear from you. Let’s make this a project for you and me

Sabana Industrial REIT Dividend Yield Falls from 8.1% to 6.9%

Yesterday Sabana released their first quarter 2014 results, and it was a poor result.

Announcement here.

Sabana Industrial REIT Dividend Yield Falls from 8.1% to 6.9% 5ACxEV5

They were very hard hit when their master-tenanted  properties lost much of their individual tenant such that the main tenant doesn’t renew with Sabana. Now they have to take over the leasing.

When the news came out, together with last years correction, many were presented with this ‘value opportunity’ for a high yield play, that is likely to be ‘misunderstood’

I’m just afraid that the mom and pop investor are usually taken in by the exceptional prevailing yield of 8%, that they may think a lot of things will work itself out.

The market sometimes sell down a REIT because the general investors do not have the same time horizon as you, and thus misunderstood.

This may present a good opportunity.

But at other times, the important fundamental determinant may have shown deterioration. In this case it is the ability of the manager and the power of this manager.

No doubt, not all industrial reits result have been fully released, but one manager in the same category as Sabana, that is Cambridge release their results yesterday and it was ok.

Incidentally, Sabana’s manager was Cambridge old manager, who made quite a fair bit of missteps in the GFC.

Sabana Industrial REIT Dividend Yield Falls from 8.1% to 6.9% 0vNG8mi

Focusing on the industrial REITs on my Dividend Stock Tracker, you will realize the prevailing yield is not as attractive versus peers anymore. The net debt to asset is also amongst the highest (note Aims Amp have the highest since they have some AEI ongoing, it is rather close to 37% instead of 25%)

Evaluation of REIT by  yield alone is dangerous. At the end of the day, it is a group of finance folks deploying money and leveraging to buy and rent properties, sometimes selling. The manager plays an important role here.

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