There have been a few articles lately on investing at an early age and the wonders of compounding. I do not have a 20 year portfolio to boast about but I do have a whole life plan that I have been paying for over 20 years. Does the wonders of compounding also applies?
In a nutshell, this is a basic whole life plan with a death coverage of $50,000. There are no riders and my annual premium is $545. Based on the guaranteed surrender value, I will break even at the end of 52 years. If I add in the non guaranteed surrender value, I would have made a modest 5.49% XIRR. I have already paid for 22 years and based on the projected values, I could ‘earn’ up to $22,503 and achieve a 4.83% XIRR. Not too bad but we all know that projected values are always very optimistic numbers.
After checking with my agent, the actual net surrender value is $17,147. That’s about $5,000 off from the initial projected value. If I translate that to XIRR, it is about 2.66%.
What does this all mean? If I compare this against a investment portfolio, the returns are nothing to shout about. If I compare this to a pure term policy, I can get way more coverage based on the premiums paid. However, if I compare this against the Singapore Savings Bond, the returns are comparable. I also have the added ‘bonus’ of a $50K insurance coverage and the potential to outperform the SSB – I will have another bonus at year 25 which is just 3 years away. Of course, it is not without risk. There is also the potential to under perform and the insurer may fold up. However after 22 years, the risk of that happening is quite low.
Pending unforeseen circumstances, I will likely keep this plan till I pass on. It will make a good parting gift to my children or great-grandchildren.
Do you also own a whole life plan and do you plan to hold it or cash out? I look forward to hearing your thoughts.