Endowment plan option for education fund

I was here and there discussing endowment plan, as a viable option to save up for child's education, with a few other bloggers. I had already shared my views in my previous posting here, so I would just like to substantiate with actual benefit illustrations. I would withhold the actual benefit illustrations, but will put up a summary of three companies that my very hardworking girlfriend had put up for me. She did the entire comparison herself, kudos to her!

A few key assumptions:

1. The endowment plan is bought on the life of my hypothetical kid, aged 1 on the next birthday

2. The proposer of the plan is me, aged 33 on my next birthday, non-smoker

3. The plan is bought with a rider, which waives off all future premium in the event that the proposer (aka me) kena death, TPD or CI

4. The plan has a sum assured of 30k over a duration of 20 yrs.

Okay, with the key assumptions laid out, here's the summary of the three plans that my gf had done up for me. I will mosaic the names of the three companies mentioned. If you need their names, liase with me and I'll fix you up with my gf. She's an independent financial advisor, just to sell her koyok here.


Let's just assume another thing - that the cost of university (local) in the next 20 yrs will be 50k. Actually it's more like 70k or above, but let's not debate about this for now. This is how I would plan for my kid:

1. Since I need 50k at the end of 20 yrs, I would want the endowment plan to cover 30k, or just a percentage of the full amount. Why? Because I believe that I can get a better rate than what endowment can give me, YET at the same time, I want to be sure that my child still gets the money for university IN CASE my investment sucks. I cover my downside.

2. Notice that I only look at a projected returns of only 3.75%, not any higher. On paper, you can put 5% or 10%, but if you plan with that higher projected sum in mind, AND you did not manage to get it, the consequence would be too much for me to bear. Thus, I would rather assume that the insurance companies are all sucky at investing my money. I like pleasant surprises, not shock.

3. Since I want to cover 30k of the education money with endowment plans, I only intend to look at the guaranteed part. Thus, I'm implicitly assuming that the insurance are so sucky at their investments that they give 0% projected. Worst case, I get the guaranteed amount of money (which is a losing situation due to the time value of money).

There are thus two ratios to look at:

A. Guaranteed portion / total premiums paid

B. Guaranteed portion / total returns at 3.75% projected (inclusive of guaranteed + non-guaranteed part)

The first ratio A gives me a rough guide of whether the deal is good. Screw the time value of money for now...this ratio just tells me at a glance if the amount of guaranteed money I get at maturity is more than the amount of money that I put in. Of course you'll want this ratio to be as above 100% as possible. Anything which is lower than 100%, I'll think twice.

The second ratio B gives me a indication of how safe the endowment is. If the guaranteed part takes up a higher % of the total returns projected at 3.75%, then it's safe. The company can screw up big time without affecting your plans so much.

The ratios for the 3 companies are as follows:

Company----------Ratio A------Ratio B
---A---------------103.89%------80.97%
---B---------------101.65%------76.09%
---C----------------86.61%-------62.40%

I give no shit about projected values. It's about as accurate as projecting what the weather will be like 20 yrs down the road. In my conservative plan, guaranty is king. You can complain until the cows come home that the projected yield is different from actual yield, but if the guaranteed part is 1 ct lesser than stated, you can sue the bugger until he gives you the balance.

I'm actually quite prepared to put 30k of premiums and getting 30k of guaranteed at the end of 20 yrs. Why? There's this very important feature in endowment plan that no other instrument can beat - waiver of future premiums in the event of TPD, CI, death. When shit happens and you're no longer around, how are you going to save for your kid? This waiver of premium ensures that your intention to put the child through university education is fulfilled no matter whether you're alive or not. If insurance company go belly up, then LL.

In life, I try to reduce as many variables as possible. I throw away inflation, I throw away projected yield, I throw away the market's up and down, I throw away everything except how much I want to pay and how much I'm going to get (guaranteed) at the end of 20 yrs. Life is simple when I only look at 2 variables.

I would choose company A. So that settles the 30k out of 50k planned. What about the 20k remaining? I would do it through savings, my own investments, and other sources. I'm not going to stake my entire plan on the survivability of a single company.

So how's my plan? Will work or not?