## Monday, January 18, 2010

### HLA Guarantee 12.5% saving plan

Hong Leong Assurance offers a plan that guarantees 12.5% return. Basically you only need to save \$3,932 for 6 years and you are guaranteed to receive \$500 every year starting from the 1st year for 35 years.

So 500 out of 3,932 is more than 12.5%

\$500 x 35 years would give a guarantee amount of \$17,500. If you do not withdraw this money, it will accumulate more interest. On the 35th year, you will get \$50,126 instead of just the \$17,500.

In addition, there is a dividend payout where the minimum is expected to be \$200. Not guarantee but pretty guaranteed as in insurance layman terms. With the most conservative assumptions etc. you will get more than \$105,000+ at the end of 35 years.

Most of the older readers should know this trick by now. There is no such thing as insurance saving that gives guarantee and higher than Fix Deposit return in normal circumstances.

If you save the same \$3,932 in a bank account that gives you 1.72%, it will give you a total \$41,082 on the 35th year; equivalent to the guarantee yearly \$500 plus capital preservation. So the guaranteed return you are really getting is less than 1.72%. Because your capital is NOT guaranteed in this plan.

If you keep the \$500 and go for the guarantee \$50,126 return at the end, that is equivalent to 2.35% return. Currently bank is offering 2.5% FD rate for annual renewal.

Lastly if you are really getting back \$105,862 at the end, that is equivalent to 4.72% annual return.

Consumers need to know what the effective rate is when comparing plans. For crying out loud, insurance field agents please upgrade yourself and calculate what the real effective rate is. May be you don't need to tell everyone about it but when some personal finance savvy consumers asked about it, it is more reputable if you can give some valid figures.

4.72% is NOT a bad return at all. But 35 years is too long.

jason said...

I can get more than 5% return in 1 month by investing in REIT in capital appreciation only. LOL at these so called saving plan.

Michael Tsen said...

true at one hand, on the other, the risk categories are different.

Kris said...

Michael,

Good analysis. This shows that nothing is free in this world.

Seems tempting if you dont do the math but 35 yrs is way too long.

Michael Tsen said...

almost nothing is free in this world :)

Kris said...

At least the air is free :P

Anonymous said...

how about if we withdraw within 6 years, or say 10 years, how much will we get? not everyone wanna wait for 25 years LOL

Vincent said...

how about Triple Lifestyle Protector- new plan come out from etiqa maybank?

Michael Tsen said...

sorry, not familiar with that plan. if a link can provide all the info about that plan, perhaps I can help take a deeper look. cheers !

LCF said...

Hey Mike, great info you have here...By the way, on this post, what were the assumptions of the HLA plan.....example...the RM 17500 becomes RM 50126,--> by assumption of 5.5% compounded annual return for PMT=500, n=35years...?

Michael Tsen said...

its been a while now, not quite sure what their assumption was but typically its 4-6%, for illustration I always use the highest return they offer since insurance companies usually can achieve that result.

the 17k is not initial investment, its actually paying 4k a year etc etc according to the post.

Anonymous said...

insurance saving plan will never be an investment tool,but it is a good tool for people who force themselve to save in the long run. It is not about return to someone,but the forgotten money saved and one day you realized that OMG i have rm200k cash in insurance policy now...like epf.

Anonymous said...

please la no any insurance saving plan can offer IRR > 6% right now, even for whole malaysia industry!

Savings Accounts said...

I agree that we can get affordable rates for short-term financing. The first and foremost tip is to make sure you are not spending more than you are earning. In fact, it is best to save half or 25% of your monthly income. This way, you can make sure that you have enough to spend your retirement life in peace after years of saving.