if an issuance agent propose you with a saving plan that give you a guarantee 19% p.a Run like Hell.
Recently while I’m having a coffee at my friend cafe ratatouille at Warisan Square, i was bother by an insurance agent from a very famous company. Its not the looks that bothers me but its the sales pitch that make me wanna laugh out my lungs.
” sir, our saving plan guarantee yearly payout or 19% p.a”
its either the insurance agent don’t know how to calculate or being brainwash by their leader to misled prospect so that they can make an easy sales.
im not against any insurance company or any insurance saving plan here. i myself is a license under such institution to give advice and sell those plans.
i will give give you a simple illustration base on projection generated from my system.
Assuming a Peter age next birthday 31. non smoking. work as F&B manager (class 2).
Buy putting aside RM300/month for 30 years by buying an insurance saving plan. here is what the projection looks like.
There are two parts to this projection.
Part 1: the Guarantee part. Peter will get a guaranteed payout of RM 2736 every two years.
Looks cool right?
Here is the problem. a lots of agents use this table to misled prospect by saying
” sir, you see, buy putting aside RM3,600 the first year and RM3,600 the 2nd year, you are guarantee to get RMRM2,736. that’s a 19% return p.a.!“
how did they came out with such return?
first year RM3600 + 2nd year Rm3600 = total investment RM7,200.
Guarantee return on 2nd year RM2,736
Return on investment (ROI) (RM2,736/7,200)x100 = 38% for 2 years.
ROI per year 38%/2 = 19%
is this acceptable? TOTALLY not!
you pay out RM3600 per year. in 30 years years you would have pay out a total of RM 108,000.
you received guarantee payment of RM2,736 every 2 years. that makes a total of RM 38,304.
looks not right. there is something wrong right?
well you need to look at the 2nd part of the projection.
Part 2: The non guarantee part.
the non guarantee part is the amount Peter cannot touch/withdraw. Peter can only withdraw when the plan mature after 30 years at the age of 61.
how much can he get? there is not guarantee in this part. but base on projection under the surrender value, there are 2 scenario. A & B. peter can expect the return between the range. The return in not guarantee because it depends on the company actual investment result.
ok now we have complete data. lets do a simple calculation how much is the actual return base.
term 30 years.
total return RM 38,304(guarantee) + RM123,154(non guarantee) = RM 161,458.
compounded return p.a = 2.53%
now Peter know the agent is lying to you!
it give you close to Fixed deposit rate of return.
the same amount of money if put in a fixed deposit yearly you will get a guarantee return of RM 171,271 projected at 3% p.a
Some insurance agent will argue with me.
1) insurance saving plan come with death benefit.
2) insurance saving plan have this rider call payor/waiver (when peter is diagnose with critical illness he will never need to pay for the premium anymore but will continue to receive the guarantee bonus every 2 years and the non guarantee return upon maturity.)
i will adress this two issue in my next article. why you don’t even need those features mention above.
and also 1 reasons why one should get the insurance saving plan.
remember if you meet someone selling you an insurance plan promising 19% p.a, run like hell and knock you head on the nearby wall. Probably there is a higher chance the insurance agent will sell you accidental coverage rather then the saving plan. kidding 🙂
happy ready and have a blessed weekend.