Life insurance policy with annual payout

COMMENT POSTED IN MY BLOG:

A few months ago, you said that a life insurance plan that gives out a regular payment reduces the return to the policyholder. NTUC has now introduced a new plan that pays out 5% of the sum asssured each year. Does your remark apply to this plan as well?

REPLY:

According to the advertisement, the potential return of the new NTUC plan is 3.7% per annum. This return is lower than the return on an endowment plan. The guaranteed payout seems to reduce the return to the customer.

If you are saving for the next 25 years, you should aim for a higher return, say 5% or more. Compared to 3.7%, the difference can be quite substantial (say 17% more). Read this FAQ.